Europe re-approves the UK Capacity Market

The UK electricity Capacity Market is to get back to business following a ruling by the European Commission that it does after all meet its State aid rules. The government has welcomed the decision, saying that it enables the Capacity Market to resume its work as Great Britain’s principal tool for ensuring security of electricity supply.

The Capacity Market – under which generators can win special contracts to supply power during periods of peak demand – was suspended in November last year after a challenge by electricity systems innovator Tempus Energy. The company said that the design of the market favoured participation by existing fossil and nuclear generators above new and cleaner alternatives, including demand-side measures. 

The reinstatement follows close work by the UK government with the Commission to overturn the suspension. The Department of Business, Energy and Industrial Strategy (BEIS) said that the ruling reaffirms its belief that the Market remains the best tool for ensuring supply security at the best price for consumers.

In a statement, Business and Energy Minister Andrea Leadsom said: ‘The Commission has… concluded that the Capacity Market, as operated since 2014, including during the investigation, complies with State aid rules. Notably, the Commission did not find any evidence that the Capacity Market puts demand-side response or any other capacity providers at a disadvantage with respect to their participation in the scheme.’

The government is awaiting the Commission’s full decision, but expects that it will be able to restart the mechanism for making payments to capacity providers, including the £1bn of deferred payments that have been suspended because of the standstill period. It also expects to confirm the conditional capacity agreements awarded in the last auction, held in July 2019, and confirm that the three capacity auctions scheduled for early 2020 will now take place. 

The Commission’s decision also notes that the UK has committed to implementing a number of improvements to the Capacity Market’s design to reflect recent market and regulatory developments, says BEIS. 

Trade association Energy UK was pleased. Chief Executive Lawrence Slade said: ‘The Capacity Market can now continue to do the job it has done successfully for a number of years, ensuring security of supply at the lowest cost to customers in times of high demand.’

‘The Capacity Market has been rightly evolving to reflect a different mix of energy generation with newer technologies gaining a greater share in recent auctions. With the inclusion of renewables in future auctions – something we have long called for – a technology-neutral Market will continue along this path and drive progress towards a net zero economy,’ added Slade.

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