UK Generators Receive All-Clear on Capacity: Update 2
(Adds response from Cornwall Insight at end)
The European Commission has allowed the UK to resume its capacity payments mechanism following an in-depth inquiry, it said October 24. The scheme, covering the period 2014-2024, does comply with EU State aid rules. The decision means that money withheld pending the outcome can now be distributed, bringing financial relief to the likes of German utility Uniper. UK consultancy Cornwall Insight put the total at about £1 ($1.3)bn.
The EC analysed feedback and comments submitted by 35 interested parties – including energy producers, interconnector operators, demand response operators, trade associations, non-governmental organisations and network operators.
"Notably, the EC did not find any evidence that the scheme would put demand response operators or any other capacity providers at a disadvantage with respect to their participation in the scheme," it said, referring to demand-side response operator Tempus, which brought the complaint that led to the suspension of the scheme last November.
It also said that the UK had committed to implementing certain improvements to the scheme for the future, including lowering the threshold for entry; allowing foreign capacity; and providing access to long-term contracts.
Generator Drax said that it now expects full retrospective payments to be made for the capacity provided, which add up to £75mn. These will appear in its 2019 results, it said, adding the decision will allow auctions to take place in early 2020. Drax said it retains options for new gas generation, which could be developed subject to appropriate clearing prices in future capacity market auctions.
Cornwall Insight said that electricity suppliers in Great Britain would now have to make payments to the Electricity Settlements Company to repay generators which provided capacity during the 2018-19 delivery year. "Suppliers were allowed to keep collecting this money under Ofgem’s price cap regulation and payments. The payments are likely to be expected by December 2019 and are estimated to be in the region of £1bn.
“While this undoubtedly good news for generators, this could potentially cause problems for suppliers at a time when they are already facing large payments for other bills such as their Renewables Obligation (RO) and Feed-in Tariff.”
A number of energy retailers have failed in the last few years, their customers being transferred to other companies with more resilient finances. British energy market regulator Ofgem this week opened a consultation into its plans to raise the barrier to entry to this sector. Since January 1, 2018, 16 retailers have gone bankrupt, many caught out by the high wholesale prices during the Beast from the East and/or the RO. Ofgem has written to the others, reminding them of the need to pay the Electricity Settlement Company promptly and in full.