Capacity Market was closed ‘on a technicality’

The scheme was implemented to ensure supply security during electricity market transition.

Suspension of the Capacity Market for electricity in the UK, following a ruling in November by the General Court of the European Court of Justice, may be only temporary as the case was decided on ‘procedural grounds’ and the Court did not find the design of the scheme to be incompatible with State aid guidelines. So says the Department for Business, Energy and Industrial Strategy (BEIS). 

The procedural problem is that the European Commission (EC) should have consulted more fully before granting State ad approval back in 2014.

The case will not impact security of supply this winter, adds BEIS, and nor does the ruling change the UK government’s commitment to Capacity Market auctions as the most appropriate way to deliver secure electricity supplies at least cost.

The government is therefore working with the EC for the scheme to be investigated as quickly as possible, and has asked National Grid to continue operating it, short of making payments. 

International electricity systems innovator Tempus Energy challenged the subsidy scheme, which was designed to ensure that peak electricity demands are met during the current period of great change in electricity markets. Tempus brought its challenge in the belief that the design of the market ensures participation by coal, gas and diesel generators, leaving cheaper, cleaner alternatives – including demand-side measures – virtually unable to compete.

The scheme has allowed some ageing coal-fired power stations to remain operational, at least temporarily, by winning contracts to generate during periods of peak demand. It has also stimulated the building of new diesel-fuelled peaking plants, as well as some new battery storage facilities. 

Sara Bell CEO of Tempus Energy said at time of the ruling: ‘This ruling opens the door for cheaper energy – greater use of demand-side innovation would change the way we use electricity in practice, and place customers at the heart of the energy system for the first time. This ruling should ultimately force the UK government to design an energy system that reduces bills by incentivising and empowering customers to use electricity in the most cost-effective way – while maximising the use of climate-friendly renewables.’ 

Not everyone agrees. Business energy consultancy Inenco’s David Oliver said: ‘[Today’s] announcement to suspend the UK’s Capacity Market until further notice brings with it yet another layer of unwanted uncertainty to the UK energy market and businesses alike. Suspending the Capacity Market and capacity payments for existing agreements poses grave questions about the future security of supply, threatening the closure of plants without the certainty of new generation to replace it.’

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