What’s next for the British capacity market?

The judgement of the General Court of the Court of Justice of the European Union came as a surprise to many. Back in mid-November, the court had ruled, that the EU Commission had not sufficiently examined the capacity market regulation prior to approval. As a result, the ECJ annulled the 2014 approval “on procedural grounds”, thereby suspending the British capacity market, which is an important mechanism for maintaining security of supply.

Since the judgement, the Government has neither held auctions where energy providers offer power generation capacity nor made payments under existing agreements. More than three months following the judgement, the EU Commission has declared in a press release published on 21 February, that it will re-examine whether the scheme is compatible under EU state aid law. According to the press release, the EU Commission will be paying particular attention to consumers who offer to reduce their consumption if there is insufficient supply on the electricity market.

“This is an important first step“, comments Greg Clark, Secretary of State for Business, Energy and Industrial Strategy, in a Written Ministerial Statement published on the same day as the Commission’s release. He adds that the government is working to reinstate state aid approval for the capacity market as soon as possible. Lawrence Slade, Chairman of Energy UK, the trade association for the UK energy industry, also welcomed the investigation. “We firmly believe that the capacity market remains the best way to ensure security of supply at the lowest cost to customers through providing a level playing field for all technologies,” says Slade.

In the press release, the European Commission stressed that the ECJ had not ruled on the compatibility of the capacity market regime with EU law. The Court had merely found that the examination prior to authorisation was insufficient. This will now be taken into account during the renewed examinations. According to the Commission, affected parties may also submit comments as the proceedings will be impartial.

Meanwhile, the Department of Business, Energy and Industrial Strategy (BEIS) confirms it is moving forward on technical amendments to legislation, in order to conduct a replacement T-1 auction later this year (originally planned for January 2019), with the results subject to positive State aid approval.  They have also confirmed that the Settlement Body will establish a system to facilitate suppliers to fund deferred payments to capacity providers, subject to a positive State aid decision.