The Electricity Capacity (Supplier Payment etc.) Regulations 2014

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations make provision for payments to be made by, and to, electricity suppliers for the purposes of the Capacity Market established under Part 2, Chapter 3 of the Energy Act 2013 by the Electricity Capacity Regulations 2014 (S.I. 2104/2043) (“the Principal Regulations”) and by capacity market rules(1). Under the Principal Regulations, the Secretary of State is required to appoint a Settlement Body, and persons awarded capacity agreements in an auction (“capacity providers”) are entitled to receive payments from the Settlement Body (“capacity payments”) for generating or reducing demand for electricity at times of system stress, and are liable to make penalty payments to the Settlement Body where the capacity agreement is breached.

These Regulations require electricity suppliers to make two types of payments: a “capacity market supplier charge” to fund capacity payments, and a “settlement costs levy” to fund the Settlement Body’s costs of performing its functions in relation to the Capacity Market. They also provide for payments to be made to electricity suppliers in certain circumstances, for the recalculation and adjustment of payments (“reconciliation”) where further data is obtained after determinations have been made, and for electricity suppliers to provide credit cover as surety for their obligation to pay the capacity market supplier charge.

Parts 1 and 2 contain definitions and general provisions, including provision about the manner in which the Settlement Body is to make the calculations set out in these Regulations (“supplier settlement calculations”) (regulation 3), and the contents of invoices and credit notes (regulation 5).

Part 3 and Schedule 1 make provision about calculations, determinations and invoicing.

Regulation 6 requires electricity suppliers to pay a capacity market supplier charge to the Settlement Body in respect of each delivery year, and to pay monthly charges on account of that liability, and provides for the calculation of such charges by the Settlement Body. Regulation 7 provides for an additional payment (a “mutualisation payment”) to be made by electricity suppliers where a supplier is in default of its obligation under Part 6 to provide credit cover as surety for the payment of its monthly capacity market supplier charge. It also provides for any surplus which arises when payment is subsequently made by the defaulting supplier to be redistributed to the electricity suppliers who have made mutualisation payments.

Regulation 8 provides for the Settlement Body to calculate and pay to electricity suppliers a share of any capacity provider penalty charges received from capacity providers under the Principal Regulations (a “penalty residual supplier amount”).

Regulation 9 provides for the calculation and invoicing of the settlement costs levy, and regulation 10 provides for refunds to be made to electricity suppliers after the end of a financial year in the event that the total amount of settlement costs levy collected for the year exceeds the Settlement Body’s actual costs.

Part 4 contains general provisions about payment of invoices and credit notes, including provision about the accrual of interest for late payment by electricity suppliers (regulation 11) and the consequences of the termination of an electricity supplier’s supply licence (regulation 16).

Part 5 makes provision about reconciliation. The Settlement Body is required, if it obtains further data after making calculations and determinations, to carry out monthly reconciliation runs after each month of a delivery year in respect of the determinations made for that month, and annual reconciliation runs after the end of each delivery year in respect of all the determinations made for that year.

Part 6 requires each electricity supplier to provide credit cover to the Settlement Body, in the form of a letter of credit or a cash deposit, which is available to be drawn down by the Settlement Body in the event that the supplier fails to pay a monthly capacity market supplier charge or a reconciliation payment by the due date. It also requires the Settlement Body to maintain a register (“the credit default register”) of instances in which an electricity supplier’s credit cover is drawn down for non-payment of an invoice, or the supplier fails to provide credit cover in accordance with the Regulations (regulation 30).

Part 7 contains miscellaneous provisions. Among other matters it extends the application of provisions about disputes in the Principal Regulations to cover disputes about calculations or determinations made by the Settlement Body under these Regulations (regulation 32), it requires the Settlement Body to exercise its functions in the manner best calculated to ensure the collection of all amounts which are required to be paid or provided by electricity suppliers under these Regulations (regulation 33) and it introduces Schedule 2 which contains minor and consequential amendments to the Principal Regulations (regulation 35). In addition, the amendment made by paragraph 3(a) of Schedule 2 will enable provision to be made in future for electricity interconnectors to become capacity providers.

A full impact assessment of the effect that this instrument and the Principal Regulations will have on the costs of business and the voluntary sector is available from the Department of Energy and Climate Change at 3 Whitehall Place, London SW1A 2AW and is published with the Explanatory Memorandum alongside this instrument on www.legislation.gov.uk.

(1)

See the Capacity Market Rules 2014,the Capacity Market (Amendment) Rules 2014 and the Capacity Market (Amendment) (No. 2) Rules 2014: https://www.gov.uk/government/publications/capacity-market-rules.