Ofgem has launched a consultation around the rules of the capacity market framework.

The consultation, which runs until 28 May, will look at changes proposed by the regulator in order to simplify the capacity market in the short term.

The proposals include amendments to reduce the complexity and burden of prequalification, including enabling providers to delay submission of certain data items to the agreement management process.

They also include amendments to facilitate a more open and liquid secondary trading market, including by opening the secondary trading market from the T-4 auction and by reducing barriers to participation in secondary trading.

According to the consultation document, this is the first phase in developing a “longer-term programme” of changes to the capacity market rules and to the way Ofgem’s rules change process operates.

It states many of these changes will not be implemented immediately but will instead be delayed to later releases.

“We believe that the rules are meeting their first objectives to deliver security of supply, but that in part they hinder their own ability to meet the second objective to ensure the efficient operation of the capacity market,” the document states.

“The complexity of the rules and the regulatory burden they place on participants may be a barrier in participation and certainly makes participation complicated, which may in turn lead to inefficient bidding in the auction.”

In November last year, the capacity market was suspended indefinitely after the European Court of Justice overturned a 2014 decision by the European Commission to authorise the scheme under state aid rules.

All payment and auctions were brought to a halt after the court found in favour of Tempus Energy. The company claimed the capacity market unfairly discriminated against demand-side response (DSR) providers in favour of fossil fuel generators.

“The General Court’s judgment was decided on procedural grounds; it was not a challenge to the nature of the capacity market mechanism itself,” Ofgem’s Five Year Review of the Capacity Market Rules – First Policy Consultation outlined.

On 25 January 2019, the European Commission lodged an appeal against the decision. Following the judgment, the secretary of state postponed the T-4 and T-1 capacity market auctions for delivery years 2022/23 and 2019/20 and suspended all payments.

The government is seeking reinstatement of state aid approval from the European Commission. On 21 February, the commission announced it was opening an in-depth investigation focusing on particular elements of the capacity market.

Last month, Tempus Energy also issued a claim for judicial review against the Department for Business, Energy and Industrial Strategy (BEIS) for continuing to operate other aspects of the capacity market during the standstill period.

Ofgem said: “We have continued our review of the rules with the aim of meeting our statutory deadline to issue a decision by August 2019. The Tempus ruling has resulted in resource implications for Ofgem. As a result of the Tempus judgement, we are consulting later than planned and have decided to delay decisions and implementations of some areas to later consultation processes.

“We are consulting later than planned on this first policy consultation and the pace at which we can implement changes has been reduced.”

Ofgem will publish its review of the rules in the summer.

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