CM contracts were suspended and payments halted after the European Court upheld a challenge to the market lodged by Tempus. The court withdrew State Aid clearance, saying that the position of demand side response (DSR) in the CM design had not been properly considered, and BEIS immediately halted the collection and distribution of CM payments.

Claire Perry said that the contracts awarded over the previous four years, which have seen annual auctions for capacity contracts lasting from one to 15 years, would come back into force and payments restart, assuming that State Aid clearance was granted after a new investigation (which could take up to 20 months).

But speaking at a Praseg (Parliamentary Renewables and Sustainable Energy Group) meeting, Sara Bell said that was not the case. “It is not going to be possible to reinstate the contracts. The auctions will have to be re-run,” she said. She added, “If government tries to reinstate it we will take legal action”.

Bell said the contracts could not be revived because the CM would not meet new EC requirements for all European Capacity Markets, which are due to be finalised before the end of the year. But it is not yet clear whether the Market will be assessed under rules applying at the time it was first submitted for approval five years ago, or regarded as a new submission and assessed under new rules.

The industry regards its as far from certain that the market will disappear and even supplier companies, who have to make payments to capacity operators, would rather avoid facing very large costs to ‘catch up’ on payments if the market is reinstated. BSC (Balancing and Settlement Code) parties are meeting next week to discuss whether to continue to collect and hold CM payments during the re-examination. That would help suppliers manage cash flow, and ring-fenced funds would provide some security to capacity operators and investors that their contracts would be honoured, if and when the market is reinstated. But that proposal comes with many issues to be discussed, such as how to manage the funds for potentially a year or more.

The proposal has been raised as an ‘issue’ by BSC members – a way of handling questions without clear solutions. If there is agreement on how to proceed a ‘modification’ to the Code could be proposed in January.