The rules and regulations of the Capacity Market (CM) may be changed the government has said, due to the impact of COVID-19 on holders of capacity agreements.
The Department for Business, Energy and Industrial Strategy (BEIS) is considering the introduction of new CM Rules and Regulations to temporarily modify the application of the Electricity Capacity Regulations 2014 and CM Rules.
This would consist of removing or relaxing certain deadlines and obligations, reducing administrative and operational burdens and minimising the likelihood of terminations arising from the pandemic.
Areas that BEIS is looking to modify include extending the deadline for metering tests to 30 September - 13 days later than the current deadline - for existing Capacity Market Units (CMUs), and both proven and unproven demand side response (DSR) CMUs holding T-1 agreements for obligations, which begin in 2020/21.
It is also looking to remove the requirement for an ITE report relating to Six Monthly Progress Reports due in in this financial year for new build CMUs and refurbishing CMUs.
Other measures that BEIS is looking into include:
- No suspension of capacity payments between 30 April and the termination date – which is usually 31 July - for CMUs that fail to demonstrate three separate Satisfactory Performance Days (SPDs) before 30 April but do so by 31 July 2020. This applies to CMUs that were awarded an agreement in an auction held after 21 December.
- The extension of the Long-Stop Date by 12 months for new build CMUs with T-1 agreements for 2020/21 and refurbishing CMUs with multi-year agreements starting 2020/21.
It also outlined two changes for DSR, including giving DSR providers with unproven DSR CMUs holding capacity market agreements beginning 2020/21 an extra 12 months to comply with the metering test and DSR test.
BEIS is also proposing a reduction in the amount of data that has to be provided by capacity providers to establish baseline demand for unproven DSR CMUs with capacity agreements beginning in 2020/21. Data will only need to be provided from two working days rather than six working days from the six-week period preceding the settlement period.
Alongside these changes, BEIS is looking to temporarily modify the appeals process to provide more time, as well as creating a new termination ground that doesn’t carry a termination fee for non-compliance occurring from the effects of COVID-19 or related restrictions.
Proposing the changes, the government pointed to the recent state aid standstill period, the effects of which, it said, are still being felt by some CM participants. This, combined with COVID-19, has prompted the changes.
Over £1 billion in deferred CM payments were paid out following the reinstatement of the CM last October, after an investigation into its state aid compliance.
The CM was suspended in 2018 after a European Court of Justice ruling that the European Commission had erred on procedural grounds in granting aid approval in July 2014. This came as a result of a case launched by Tempus Energy that claimed the mechanism inherently favoured some forms of generation over others.
Since its reinstatement, the CM has seen a variety of prices across its auctions. The latest T-4 auction saw prices jump to £15.97/kW/y, almost double that of the previous T-4 auction. However, the T-1 auction, results of which were announced in February, cleared at £1.00/kW/y, calling into question the role of the auction, which had seen consistently low prices.
And the T-3 auction, clearing at a middling £6.44/kW/y, saw the first instance of battery storage providers seemingly sidestepping de-rating factors that were attached to battery storage assets in 2018 by bidding within the DSR capacity.