Similar challenges were successful in Northern Ireland judicial review applications taken by EP Kilroot and Prime Power Generation in [2024] NIKB 102 (PDF, 535 KB).

A capacity mechanism is a measure to ensure the necessary level of electricity resource adequacy by paying electricity resources for their availability. In the Single Electricity Market (“SEM”) in Ireland, such resources can bid into Capacity Market auctions and, if they are successful, are entitled to capacity payments.

In the High Court in Ireland, the applicants applied for qualification of several units to participate in the 2028/2029 T-4 Capacity Auction. Section E.7.2.1 of the Capacity Market Code (the “Code”) provides that the System Operators (“SOs“) may reject an application for qualification where one of several conditions are met, including “(f) they consider the delivery of a part or all of any New Capacity proposed in the Application for Qualification is not feasible (either technically or in the applicable timeframe)”.   This was in contrast to mandatory grounds for rejection at section E.7.5.1. of the Code.

In Kilshane’s case, the SO issued a Provisional Qualification Decision (“PQD”) that the Candidate Units did not qualify on the basis of section E.7.2.1(f) of the Code. The SO reviewed and confirmed the decision, considering that, while Kilshane was open to delivering a 400 kV connection contestably, the SO was not assured that the connection could be built within applicable timeframe. Kilshane referred a dispute to the Capacity Market Dispute Resolution Board (“CMDRB”), which did not uphold Kilshane’s complaint. Kilshane raised a notice of dissatisfaction under the Code, and the CRU confirmed the SO’s decision. Coolpowra’s applications to qualify generators and battery modules were also rejected by the SO on the basis of section E.7.2.1(f) of the Code. The SO’s decisions identified factors including that a gas pipeline would require Strategic Infrastructure Development approval which in its view could take 18-24 months; that development of a new 400kV transmission station was not achievable in the timeframe; and that the relevant transmission line would not be able to transport the new capacity through the grid, and the SO would not be able to upgrade it on time. Coolpowra also availed of the dispute resolution procedures and the SO’s decision was ultimately confirmed by the CRU.

The Court quashed the CRU’s decision in each case and remitted both applications to the CRU for further consideration. The Court’s key conclusions are set out below.

Applicable law

The Code is governed by the law of Northern Ireland and the Court in Ireland considered it was bound by findings of the Northern Ireland Court in [2024] NIKB 102 (PDF, 535 KB) as to law governing interpretation of provisions in the Code. The Court considered it did not have to determine the question of the applicable law for the purposes of assessing the applicants’ grounds of judicial review but could simply proceed on the assumption that the applicable law is the law of Ireland. This was because, irrespective of whether the Court applied the administrative law of Ireland or Northern Ireland, its conclusion would be that the respondents failed to exercise a discretion which, under the Code, they were obliged to exercise. They incorrectly believed that they were automatically required to reject the applications once they reached a view that the projects were not feasible within the timeframe.

Failure to exercise discretion/fettering discretion

The Court found that section E.7.2.1 requires a two-step process and the exercise of a residual discretion. The respondents incorrectly believed that once they had assessed the applications as not being feasible within the timeframe, that was the end of the matter and they bound to reject the Candidate Units. However, the SO was required to consider whether, notwithstanding its conclusion that delivery of the new capacity is not feasible, it would be appropriate to admit the applications.  That was an unlawful fettering of discretion with the consequence that the applicants were denied the possibility of a residual discretion being exercised in their favour. Each of the subsequent stages of the decision-making process was infected with the same error.

Test for feasibility

Both applications were refused on the basis that “the delivery of a part or all of any New Capacity proposed in the Application for Qualification is not feasible (either technically or in the applicable time frame).” The concept of “feasible” is not defined in the Code but the High Court in Northern Ireland had provided a definition which the Irish Court adopted:

“ … the word ‘feasible’ carries a different shade of meaning in each of its uses in section E.7.2.1(f) of the Code. The reference to the delivery of new capacity being technically feasible is much closer to that end of the spectrum where the question is whether it is technically possible. Is there any technical reason why the capacity simply could not be delivered? Provided the delivery of the new capacity is technically possible, the more complex question is whether it is feasible within the applicable time frame. This issue is more predictive in nature and calls for more of an exercise of regulatory judgement. There are more variables to be taken into account and it is not a mere engineering query. In this case, I agree with the position adopted by the SEM-C (and the SOs) that the question is whether in-time delivery is ‘reasonably practicable’ (which is materially similar in meaning to reasonably possible or reasonably doable). The important point is that this is more than mere possibility. Some assessment of the reasonableness of achieving delivery is required. It is also less than being persuaded that delivery will be achieved on the balance of probabilities. Some level of doubt about delivery is permissible but the appropriate level of doubt in all of the circumstances is itself a question of regulatory judgement.”

The Court found that, in the Prime Power case in Northern Ireland, the CMDRB panel incorrectly applied too high a threshold in determining whether the projects were “feasible”. Whether delivery of the new capacity was probable, or more likely than not, was too exacting a standard. The question was whether delivery of new capacity in the timeframe was reasonably practicable.  It was wholly improbable that the same panel would have applied a different legal test in the applicants’ cases to the legal test they applied in Prime Power. On the balance of probabilities, this fundamental error infected the present cases as well.

Breach of fair procedures

In both cases, certain aspects of the decision-making process were unsatisfactory. In Kilshane, the SO failed to engage as fully as it should have with submissions made at the PQD stage and at CMDRB stage.  This fell to be considered with other flaws, errors and features of the decision-making process to determine whether, on a cumulative basis, they were sufficient to warrant intervention by judicial review. The Court dealt with this ‘omnibus issue’ under the final section (viii), below.  In the Coolpowra case, the Court found it unsatisfactory that relevant and potentially important documents had not been considered by the ultimate decision-maker. This too would be included in the ‘omnibus issue’, and would have a bearing on the arguments related to section (vi), below.

Did the CRU review cure earlier flaws?

The respondents argued that an error at an earlier stage of the process should not have the disproportionate effect of invalidating the entire process. The Court noted that, the more a review consists of a full merits-based appeal, the greater the capacity for “curative effect” to correct errors at first instance. The narrower and more limited the review, the more reduced its capacity to correct errors. To cure an error, it is necessary to be aware of it, and the Court was not satisfied that this was the case with the CRU review. The question was whether the review had operated to correct the procedural errors and flaws that occurred in the process up until the FQD stage. The Court identified several cumulative factors which led it to conclude that the decision-making process was sufficiently flawed to warrant setting aside the final decision, and was not saved by the review that was actually carried out by the CRU/SEM Committee in either instance.

Should relief be withheld on futility grounds?

The Court considered that the just result would be to quash the final decision in each case and to remit the proceedings to the SEM Committee stage for further consideration. The respondents had not discharged the burden of demonstrating that remitting the applications for fresh consideration would inevitably lead to the same result.

Choice of decision-making stage for remittal purposes

The Court considered that remitting the proceedings to the SEM Committee would strike an appropriate balance. The Code did not oblige the SEM Committee to limit its review to the “plainly wrong” standard, and no objection in principle was made to the Court giving a direction that the Committee should consider each remitted case on its merits in accordance with law.

In concluding remarks, the Court noted it would be appropriate for the respondents to give further consideration to Capacity Auction timetabling, so that engagements with applicants are not unduly rushed or pressurised and that, if a legal challenge is brought, there is sufficient time to dispose of it without compromising longstanding auction dates.

Capacity mechanisms are an important feature of energy markets and are required to give investment certainty to ensure that countries have generation capacity to meet demand. That they are an enduring features of energy systems is recognised in the most recent amendments to the Internal Market in Electricity Regulation and it is critical that they are designed to successfully deliver the capacity required to meet customer needs.