The government has failed to rule out that it may have to recover capacity market payments already made to contract holders as a result of today’s landmark ruling by the European Court of Justice.
News broke earlier today that the UK's Capacity Market has been initially suspended after the ECJ annulled the European Commission’s decision not to object to the scheme. This now prevents the government from holding further auctions or from making payments to existing contract holders.
However, a briefing released by National Grid has suggested that legacy payments may be recalled as part of the European Commission’s formal investigation into the scheme.
“The government is taking no steps to recover payments at this stage, and hopes that this can be avoided. BEIS 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. The final position will need to await the results of the Commission’s investigation,” it states.
This is due to the fact that the ECJ judgement has suspended the legality of granting state aid through the capacity market, and may require such aid to be returned.
In addition while capacity market payments have been suspended, it is not known if contract holders are required to continue providing available capacity. On the question of whether or not they will have to continue to comply with their agreements, if they will be subject to penalty or termination fees, or if they can withdraw from agreements altogether, the government is merely said to be “reviewing the judgment, including its implications for capacity providers”.
It adds that it will provide guidance “as soon as possible”.
The briefing also provided more detail on the next round of auctions, which had been scheduled to take place in January and February 2019. National Grid has been instructed by secretary of state Greg Clark to postpone the upcoming T-4 and T-1 Auctions for Delivery Years 2022/23 and 2019/20 respectively indefinitely.
The government is intending to seek separate state aid approval from the Commission to run a one-off ‘replacement’ T-1 Auction, while the postponed T-4 is intended to be run as a T-3 Auction in next year’s auction round – assuming the Commission completes its investigation and state aid is approved.
National Grid has said it will return all credit cover currently held in relation to these auctions, but that all agreement holders from past auctions may also request the return of credit cover. Owing to the “large volume of credit cover to be returned”, the grid operator has said this may take longer than 11 working days to return payment.