The government intends to run the postponed T-4 auction which was due to take place in February as a T-3 auction a year later, National Grid has revealed.
The capacity market was suspended until further notice yesterday (15 November) after the European Court of Justice overturned a 2014 decision by the European Commission not to raise objections to the scheme under state aid rules.
The court ruled in favour of Tempus Energy which had appealed against the decision in 2015 on the grounds that the mechanism discriminated against demand-side response and favoured large generators. It agreed with Tempus that in choosing not to hold a formal investigation, the commission had failed to properly establish the compatibility of the capacity market with state aid rules.
In an industry briefing, the delivery body for the mechanism, National Grid, confirmed the government will be prevented from “holding any capacity auctions, making any capacity payments under existing agreements or undertaking any other action which could be seen as granting state aid until the scheme can be approved again”.
“We are still able to continue with activities which do not involve granting state aid, including completing the prequalification process for 2019 in case it is required for future capacity market auctions,” the document added.
Accordingly, National Grid said it had been instructed by the business and energy secretary Greg Clark to “postpone indefinitely” the upcoming T-1 and T-4 auctions for delivery in 2019/20 and 2022/23 respectively.
Explaining the government’s new plans, National Grid said: “The postponed T-4 is intended to be run as a T-3 auction in next year’s auction round, subject to the commission completing its formal investigation and providing state aid approval for the main capacity market scheme.” It said the government will also seek separate state aid approval to run a “one-off replacement T-1 auction.”
The delivery body said credit cover for the postponed auctions will be returned to participants but cautioned that the process may take longer than the standard 11 working days.
With regards to existing contracts, National Grid said the government is “taking no steps to recover payments at this stage and hopes that this can be avoided.
“BEIS [The Department for Business, Energy and Industrial Strategy] will discuss with the commission the extent to which aid already paid may need to be recovered, as part of the commission’s formal investigation”.
It was unable to provide an answer as to whether capacity providers will be penalised for breaching the terms of their agreements during the “standstill”, adding that BEIS will provide guidance on this issue “as soon as possible”.
Click here for more details on yesterday’s landmark ruling and industry reaction.