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Legal Update: BEIS consults on easing Capacity Market requirements due to COVID-19

On 24 April 2020, the Department for Business, Energy & Industrial Strategy (BEIS) issued a consultation Paper titled Capacity Market Proposed Easements in Response to COVID-19 pandemic.

Extension to construction deadlines

One of the key proposals is to extend by 12 months the Long-Stop Date for New Build CMUs awarded T-1 agreements for Delivery Year 2020/21 and Refurbishing CMUs with multi-year agreements starting in Delivery Year 2020/21. Although these CMUs will not be entitled to capacity payments until the relevant milestone has been achieved, they are at least relieved of the risk of termination.

As BEIS points out, these CMUs are in a less favourable position than New Build CMUs with a T-4 Capacity Agreement in the 2016 auction. Such projects have a Long-Stop Date falling in 2021; so effectively have a one-year grace period to achieve the Minimum Completion Requirement before they are at risk of having the agreement terminated. So BEIS’s proposal aims to put New Build T-1 CMUs and Refurbishing CMUs in a similar position to New Build T-4 projects.

New termination event

Despite these extended deadlines, given the continuing risk of delays to construction work caused by COVID-19, projects with a grace period to 2021 are not safe from the risk of termination for failure to achieve the Long Stop Date requirement. BEIS are also therefore proposing to introduce a new termination event that carries no termination fee where non-compliance arises from the pandemic or related restrictions. It is not clear if this will apply to New Build T-4 projects as well as New Build T-1 projects and Refurbishing CMUs but presumably will do, given the intention to equalise these projects.

The introduction of such a new termination event could though be seen as a mixed blessing. As things stand, projects failing to achieve the Minimum Completion Requirement by the Long-Stop Date could try to seek an extension or even overturn a termination notice by arguing that the delays are due to the pandemic. Admittedly, force majeure is expressly excluded under the Capacity Market Rules from being raised; however, compliance with the new social distancing requirements could be treated as a change in law. If there is a new termination event expressly for delays due to the pandemic, that possibility will be excluded.

It is also unclear whether, in addition to the removal of termination fees, the sanction of being excluded from further auctions will also be lifted under the new termination event. Hopefully this will be the case.

Other changes to CMUs

Relief will be given to CMUs which fail to demonstrate three separate Satisfactory Performance Days by 30 April 2020 for the current Delivery Year. Affected CMU’s will be given an extension to 31 July 2020.

There are also relief provisions for Metering Tests and Independent Technical Expert Reports and for Demand Side Response CMU’s which are struggling to meet capacity obligations.

It is also proposed to extend the appeals process for appeals against termination.

Next steps

The consultation period only lasted a week, ending on 30 April 2020, so a decision on changes to be made can be expected shortly.

 

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