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30 March 2020
The Department for Business, Energy and Industrial Strategy ("BEIS") ran its Capacity Market ("CM") Consultation on Future Improvements (the "Consultation") between 3 February – 2 March 2020.
Following the eleven month standstill period imposed by the judgment of the General Court in November 2018, the European Commission completed their investigation into the GB CM scheme and published their final decision (the "Decision") in October 2019, finding that the CM scheme complies with EU State aid rules, bringing the standstill period to an end. The full decision was published on the 6th March 2020.
The Consultation sought views on proposals to implement five of the six commitments referenced in the Decision, as well as reviewing the exclusion from the CM of plants with long-term STOR contracts and other minor improvements.
Implementation of the commitments referenced in the Decision is intended to ensure the continued compatibility of the CM with State aid rules in the future and relate to:
To achieve these commitments the Government proposes to:
The recast Electricity Regulation in 2019 introduced a new requirement for capacity mechanisms to include carbon emissions limits for both new build and existing capacity. In 2019 the Government consulted on arrangements for applying the emissions limits in respect of generating units which have fossil fuel components that existed before 4 July 2019. The Government response to that consultation will be published in due course.
The Agency for the Cooperation of Energy Regulators (ACER) published its opinion (the "Opinion") on the new requirement, where they proposed a detailed methodology for calculating compliance with the emissions limits and arrangements for the reporting and monitoring of carbon emissions in respect of generating units. Whilst the Opinion is non-binding, it presumes that Member States applying capacity mechanisms will implement the arrangements. To account for the Opinion, the Government is now consulting on amendments to the CM Rules.
Declarations for existing capacity
The Government is considering whether to apply the carbon emission limits from 1 October 2024 or 5 July 2025 to existing capacity. A decision will be announced in due course, but irrespective of the final decision as both dates fall within the 2024/25 Delivery Year the CM Rules will need to be amended in advance of the T-4 auction.
The Government proposes that an Applicant for a CMU which contains a fossil fuel component will be required to submit during prequalification a declaration to the Delivery Body listing all of the components in the CMU with a calculation of emissions against each. This is more detailed than the current requirement in the CM Rules, but is in line with the Opinion and is necessary to enable the proper application of the emissions calculation. In line with the current position, no declaration will be required for CMUs that do not contain a fossil fuel component.
Reporting and Verification
As well as this declaration, the Government propose to build upon the existing framework and require more information to be submitted to support the verification of compliance with the emissions limits and in line with the Opinion. Specifically, an applicant must declare:
It will be interesting to see how such focus on carbon emissions develops in the future in light of BEIS' focus on Net-Zero.
The T-4 Capacity Auction for delivery in 2023/24 (the "Auction") concluded on 6th March 2020 and the provisional results have been published. The clearing price was a healthier £15.97, with 73.62% of applicants securing a Capacity Agreement.
Existing generating capacity secured 77.68% of agreements. The largest proportion of agreements were awarded to existing and new-build Combined Cycle Gas Turbines (CCGT), followed by Combined Heat and Power (CHP) (10.25%). 1.3GW of existing coal plant and three onshore wind farms also secured agreements.
For a full list of the CMUs to which a capacity agreement has been awarded and the duration of those agreements, see page 6 of the Final Auction Report.
The brief Consultation period was to ensure that the Government had time to make any necessary legislative changes and changes to the CM rules to implement the commitments covered in the Consultation before the prequalification window for the next auction round opens in Summer 2020.
Following the close of the Consultation, the Government will now seek to make the necessary amendments to the Electricity Capacity Regulations and the Capacity Market Rules before the prequalification window for the T-4 2024/25 and T-1 2021/22 auctions open in the summer of 2020.
For further information on this topic please contact Louise Dalton or Matthew Brown at CMS Cameron McKenna Nabarro Olswang LLP by telephone (+44 20 7367 3000) or email (firstname.lastname@example.org or email@example.com). The CMS Cameron McKenna Nabarro Olswang LLP website can be accessed at cms.law.
This article has been reproduced in its original format from Lexology – www.Lexology.com.
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