Ofgem has said it will remove the price cap allowance for capacity market payments unless it has “sufficient confidence” they will be collected from suppliers.
The regulator issued the update after the capacity market was suspended last year due to a shock ruling by the European Court of Justice. Judges overturned a 2014 by the European Commission to approve scheme under state aid rules, bringing all payments and auctions to a halt.
At the beginning of 2019, Ofgem introduced a cap on default tariffs to prevent consumers from being overcharged by suppliers. The cap includes an allowance for capacity market payments.
In an open letter to stakeholders, the regulator said the level of the price cap for the second period of the scheme – running from 1 April to 30 September – will be set on 7 February.
If, by then, suppliers appear unlikely to be required to make capacity market payments during the period in question, Ofgem will only include an allowance for the administrative costs of the scheme.
If this happens but suppliers are nevertheless required to make the payments, the regulator will consider rolling over the corresponding allowance to the third price cap period so the costs can be recovered from customers.
Last month, the Department for Business, Energy and Industrial Strategy published a consultation on its plans for reinstating the capacity market. According to the document, the government intends to resume collecting payments from suppliers whilst it seeks reapproval from the European Commission.
The department said it may therefore be “sensible” for suppliers to charge customers for the payments pending the outcome of the consultation, which closed to responses on 10 January.