BEIS to resume collecting capacity payments from suppliers

The government has announced its intention to resume collecting capacity market payments from suppliers during the current standstill period.

In a consultation published shortly before Christmas, the Department for Business, Energy and Industrial Strategy (BEIS) said this would enable contract holders to receive deferred payments promptly if the mechanism is reapproved.

The capacity market was suspended indefinitely in November after the European Court of Justice ruled the European Commission had failed to properly investigate the mechanism when granting state aid approval in 2014.

Shortly afterwards, BEIS confirmed it had stopped collecting payments from suppliers as a result and instructed them to pass on the savings to consumers through lower energy bills.

However, the department has now said it may be “sensible” for suppliers to “continue to collect money from their customers” pending the outcome of the consultation. It said the failure to resume collections during the standstill period could otherwise lead to a “spike” in future costs to suppliers and consumers.

“This could create practical difficulties in collecting funds from suppliers and, in turn, their customers,” the consultation explained. “It would also have implications for the setting of the standard variable tariff price cap”.

According to the document, the European Commission has expressed “no objection” to the government’s plans in this regard.

BEIS has outlined two potential arrangements for making collections during the standstill period: firstly, for the Electricity Settlements Company to resume taking payments from suppliers as per usual, and secondly, to require suppliers to pay into a trust or escrow account through an industry modification to the Balancing and Settlement Code.

The department noted it does not have any formal role in developing or implementing the second option, nor does it have any control over its timing. It said it expects the modification to be ready for adoption in February or March but warned it could take longer to implement.

BEIS also confirmed that existing capacity contracts are “still capable of being fully administered and enforced”.

“As per previous advice, capacity providers should continue complying with their agreements”, the consultation added. It said termination fees and penalty charges will not be applied until after the standstill period is over.

The department additionally reiterated its intention to hold a T-1 auction over the summer to replace the auction previously scheduled for early 2019.

The deadline for responses to the consultation is 10 January. BEIS plans to hold a second consultation in spring on the regulatory changes necessary to allow for the “top-up” auction.