Utility Week

16 | 8TH - 14TH NOVEMBER 2019 | UTILITY WEEK Policy & Regulation Analysis L ove it or loathe it, the capacity market is back. It's nearly a year since the Euro- pean Court of Justice sided with Tem- pus Energy in overturning a 2014 decision to ratify the capacity market as compliant with state aid rules, thereby rendering it illegal. A-er an eight-month investigation con- ducted at the behest of the court, the Euro- pean Commission approved the scheme for a second time on Thursday 24 October, paving the way for its return. The most pressing concern for the energy industry is when the payments to capacity providers and from suppliers will resume. In a written statement delivered to Par- liament last week, business and energy secretary Andrea Leadsom said the "vast majority" of the payments to capacity pro- viders will be made in January 2020. £1bn financial hole The suspension of the capacity market had collectively blown a £1 billion hole in their finances. Analysis published by ratings agency Moody's says the worst affected com- pany in absolute terms is EDF Energy, which has been le- more than £308 million short by the freeze. Next comes RWE, which is down £204 million, and SSE, down £151 million. But the firm breathing the deepest sigh of relief may well be Intergen that, of the com- panies that Moody's examined, was by far the worst affected on a proportional basis, losing more than 40 per cent of its opera- tional revenue for the current financial year – or £39 million. For comparison, SSE and RWE – respec- tively the second and third entries on the list – were deprived of less than 10 per cent of their operational revenues. Although she did not state explicitly when they will start, Leadsom did send a letter to the delivery and settlement bodies triggering a pre-agreed timetable for restart- ing collections from suppliers. According to Audrey Gallacher, director of policy at Energy UK, this means: "Suppliers will be getting an invoice on 14 November, and they've got until 21 November – five working days – to pay that invoice." "If they don't pay that invoice, then the Electricity Settlements Company will do a default supplier list – so it will name who hasn't made the payments," adds Gallacher. "And then because it's a creditor, it will go out and actively get that cash off anybody who hasn't paid." She continues: "Any money that is not collected by 13 December is then subject to mutualisation." For the uninitiated, mutualisation is the process in which any unpaid bills are recov- ered proportionally from all suppliers that are still operational. Last year, the process was activated for the first time for the Renew- ables Obligation scheme a-er 34 suppliers collectively failed to make nearly £60 million in late buy-out payments. In contrast to the RO, capacity market payments are collected from suppliers every month. It is also worth less on a per-kilowatt- hour basis. Cornwall Insights' forecast for the current year puts the cost of the capacity market to suppliers at 0.39p/kWh – less than a sixth of its 2.6p/kWh forecast for the RO. However, the suspension of the capacity market means the bill for the best part of a year will all become due at once. Companies are ready Robert Buckley, head of retail at Cornwall, says most companies should be well prepared for this: "All the conversations I've had over the last 12 months [indicate] that people have been separately accruing for the capacity market payments… and o-en that's involved the payments going into separate accounts, or certainly being accounted for separately." On the other hand: "The track record of non-payment of other things suggests that some people may have problem." Ofgem did put four suppliers on notice earlier this month for failing to meet the initial deadline for making this year's RO buy-out payments. One of the four – Toto Energy – has since gone bust, meaning the money they owed may have to be recouped from across the industry, but two have since made the payments. Only Genergy was told to pay £674,000 or risk having its licence revoked. There are fewer companies in arrears than at the same point last year and the amount they owe is much less. Then again, the suspension of the capacity market may have provided temporary relief to some firms that might otherwise have found themselves on the regulator's naughty list. Gallacher says the government has had its finger on the pulse of suppliers: "Up until now suppliers have been encouraged to c0llect the money. They've been getting shadow invoices, if you like, so that there isn't any surprise about what the ultimate bill would be." Return of the capacity market Nearly a year after a European court decided the capacity market broke state aid rules, it is back. Tom Grimwood asks if suppliers are ready to resume payments under the scheme. SUPPLIER FAILURES DURING SUSPENSION OF CAPACITY MARKET Failed supplier Number of customers Date Supplier of last resort Usio Energy 7,000 October 2018 First Utility Extra Energy 129,000 November 2018 Scottish Power Spark Energy 290,000 November 2018 Ovo Energy One Select 36,000 December 2018 Together Energy Economy Energy 235,000 January 2019 Ovo Energy Our Power 38,000 January 2019 Utilita Energy Brilliant Energy 17,000 March 2019 SSE Cardiff Energy Supply 800 August 2019 SSE Solarplicity 8,000 August 2019 EDF Energy Eversmart Energy 29,000 September 2019 Utilita Energy Rutherford Energy Supply 280 October 2019 Total Gas and Power Toto Energy 134,000 October 2019 Not yet determined Total failures since October 2018 924,000 Source: Moody's

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