Courts Overturn Decisions in T-4 28/29 Capacity Auction Disputes

The courts in Dublin and Belfast have quashed decisions relating to the T-4 28/29 Capacity Auction. The decisions mark the first successful court challenges by electricity generators to the Capacity Market. In this update, we consider the judgments delivered by the High Court in Belfast.

What you need to know

• Electricity generators in the Single Electricity Market have successfully challenged decisions by energy regulators to exclude their projects from the Capacity Auction.
• In judgments delivered late last year, the courts in Dublin and Belfast ruled that the decisions must be quashed and sent back to the regulators for reconsideration.
• The Capacity Auction was postponed while the court proceedings were expedited in Belfast and Dublin. The bidding window was extended before finally closing on 17 December 2024.
• In the first of our updates, we examine the judgments of the Belfast court which are significant and mark the first time a court has closely examined the terms of the Capacity Market Code.

Late last year, power generators in Ireland and Northern Ireland successfully challenged decisions by the energy regulators to exclude their projects from the T-4 28/29 Capacity Auction.

The Belfast High Court delivered three judgments.[1] In doing so, the court twice quashed the Northern Irish energy regulator’s decision not to qualify a proposed 500MW CCGT power plant by EP Kilroot (EPK), finding that the decision-making process was procedurally unfair. Prime Power Generation (PPG), the developer of a proposed 480MW CCGT plant, was unsuccessful on all grounds.

The High Court in Dublin also quashed decisions to exclude projects proposed by Kilshane Energy and Coolpowra. Although the court’s ruling was delivered in December 2024, the written judgment, outlining the detailed reasons for the court’s decision, has yet to be delivered.

Court hearings in Belfast and Dublin were expedited so that rulings could be delivered before the end of the Capacity Auction. After quashing the initial decisions, the courts ruled that the projects should be considered by the energy regulator again. Unfortunately for the applicants, the outcome ultimately remained the same – they failed to qualify for the Capacity Auction. While highlighting the limits of judicial review as a remedy for generators in this situation, the judgments provide important guidance for market participants on the interpretation of key provisions of the Capacity Market Code.

Qualification under the Code

Capacity Auctions provide a route to market for conventional generation plant which deliver secure generation capacity to the grid. Successful projects are paid a per MW rate for the capacity sold to the market. These payments to generators are funded by a charge to suppliers. In return, suppliers are protected against high energy prices by a hedge. To participate, projects must first qualify.

Qualification takes place under the Capacity Market Code. EirGrid plc and SONI Limited (the System Operators) make provisional decisions. The Code permits unsuccessful parties to seek a review of these provisional decisions. If they remain unsatisfied with the outcome, they can raise a qualification dispute before the dispute resolution board (DRB) under the Code.

After the DRB decides any disputes, the System Operators submit final qualification decisions to the energy regulators in Ireland and Northern Ireland for approval. As decisions on qualification concern the Single Electricity Market, the energy regulators act through the SEM-Committee (the SEM-C).

In these cases, the System Operators declined to qualify the projects. Their decisions remained unchanged following the review and DRB process. The SEM-C effectively agreed with the System Operators’ decisions. In summary terms, all decision-makers, including the SEM-C, found that:

• PPG’s project was not feasible, and
• EPK’s implementation plan was not achievable.

Court proceedings and the parties

Although the Code is governed by Northern Irish law, proceedings can be brought in either Northern Ireland or Ireland. The cases all concerned decisions of the SEM-C – a committee through which the Commission for the Regulation of Utilities (CRU) and the Northern Ireland Authority for Utility Regulation (UR) exercise regulatory functions concerning the single electricity market on an all-island basis. Where a decision of the SEM-C is challenged, the respondent is the regulator of the jurisdiction in which the project is situated, the UR in Northern Ireland, or the CRU in Ireland.

This is why PPG and EPK commenced their proceedings in Belfast against the UR, whereas Kilshane Energy and Coolpowra sought to judicially review the CRU in the High Court in Dublin. Given their central role in the qualification process, the System Operators also participated.

Judicial review of decision-making under the Code

The Belfast court emphasised that a court should be slow to interfere with the exercise of the expert and informed judgment of a regulator, such as the SEM-C.

The court also had regard to the Code’s layered decision making-process, including the fact that the System Operators, DRB, and SEM-C had together spoken with ‘one voice’ on the key question of whether the EPK and PPG projects should qualify for the Capacity Auction.

The court rejected the argument that the SEM-C decision was ‘final and binding’ under the Code, and immune from challenge. It also found that it will generally be the SEM-C’s decisions, and not those of System Operators or the DRB, that are capable of being judicially reviewed.

Decision of the High Court in Belfast

The Belfast court’s decision to quash the SEM-C’s decision regarding EPK came down to one narrow ground – the SEM-C’s failure to engage with EPK on new issues which emerged during the final stages of the process, and which were central to the SEM-C’s decisions. The process was flawed, and the SEM-C decision was quashed on grounds of procedural unfairness on 29 November.

The court directed the SEM-C to make a new decision, which it did on 2 December. EPK challenged the new SEM-C decision and succeeded in having it quashed on 10 December, on materially similar grounds. Although EPK was successful only on procedural grounds, and PPG did not succeed at all, the court’s judgments provide important guidance on the interpretation of the Code.

Feasibility under the Code

The Code gives the System Operators discretion to reject a project where project delivery ‘is not feasible (either technically or in the applicable time frame)…’ The court observed that ‘technically feasible’ is closer in meaning to ‘technically possible’ and involves examining whether there is a technical reason why a project cannot be delivered. The more complex issue – and the one that often gives rise to disputes – is whether project delivery is feasible within the applicable time frame.

The court decided that the role of the System Operators was to decide whether on-time project delivery was ‘reasonably practicable’. This required an assessment of the reasonableness of what is proposed. Although the System Operators cannot be reckless, by closing their eyes and hoping for the best, the court found that they must be prepared to accept a reasonable degree of risk.

The court took a practical approach to feasibility and accepted that ‘no project is ever entirely risk free and there will always be some level of uncertainty about how things may work out’.

The court observed generally that there was overlap between the various grounds on which the System Operators might refuse to qualify projects under the Code, and encouraged the SEM-C to reflect on whether it might be appropriate to modify the Code to bring greater clarity.

Conclusion

This litigation marks the first occasion on which the qualification process under the Code has been the subject of detailed judicial consideration. The court’s commentary on key qualification criteria, including feasibility, is significant, as it is often the subject of disputes before DRBs under the Code.

We have prepared a detailed analysis of the judgments. Please register your interest below.

Register your Interest

The High Court in Dublin delivered a separate ruling quashing the SEM-C’s decisions relating to the qualification process for the T-4 28/29 Capacity Auction on 10 December. We await publication of the written judgment of the court in Dublin which will be the subject of a further update in due course.

For more information and guidance, contact a member of our Construction, Infrastructure & Utilities team.

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The content of this article is provided for information purposes only and does not constitute legal or other advice.

[1] [2024] NIKB 102, [2024] NIKB 105 and [2024] NIKB 106.