The European Commission has approved the UK Government’s Capacity Market scheme which ensures the nation has enough power supplies during the winter months.
It was in response to a legal challenge brought forward by clean technology company Tempus Energy, which argued the Capacity Market gives an unfair advantage to fossil fuel power generation plants over demand side response (DSR) technologies that are “cheaper and more reliable”.
Under the Capacity Market, generators are offered financial incentives for ensuring power plants are kept on standby and are ready to provide back-up electricity when demand is at its peak, especially during the winter months.
The Commission said it analysed feedback and comments submitted by 35 interested parties, including energy producers, interconnector operators, demand response operators, trade associations, non-governmental organisations and network operators.
Its investigation found the Capacity Market, covering the period 2014-2024, complies with EU state aid rules and in particular, confirmed the scheme is necessary to guarantee security of supply in Britain and does not distort competition in the Single Market.
The Commission adds: “Notably, the Commission did not find any evidence that the scheme would put demand response operators or any other capacity providers at a disadvantage with respect to their participation in the scheme.
“In addition, considering recent market and regulatory developments (including the entry into force of the new Electricity Regulation) and other issues identified during the UK’s recent five-year review of the Capacity Market, the UK has committed to implementing certain improvements to the scheme for the future.”
These improvements, in particular, concern the lowering of the minimum capacity threshold for participating in the auctions, the direct participation of foreign capacity, the participation rules for new types of capacity, the access to long term contracts, the volume in the year-ahead auction and the compliance with the new Electricity Regulation.
Government confirms £1bn worth of deferred payments to be made by January 2020
Business and Energy Secretary Andrea Leadsom said she is “pleased” about the EU’s approval for the Capacity Market scheme, which means the UK can start making payments to capacity providers.
That includes the £1 billion worth of deferred payments that were suspended because of the standstill period as well as future capacity, with the vast majority of back payments expected to reach capacity providers in January 2020.
She also confirmed the conditional capacity agreements awarded in the replacement T-1 auction, held in July 2019, have become full capacity agreements, securing supply for this winter.
The three capacity auctions scheduled for early 2020 will also take place, which will secure the majority of the UK’s capacity needs out to 2023/24.
Energy UK also said it is “delighted” with the EU’s decision, adding the suspension of the Capacity Market scheme “threatened serious consequences”.
Chief Executive Lawrence Slade said: “The CM [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 CM will continue along this path and drive progress towards a net zero economy bringing benefits for both the environment and the economy, while reducing costs for customers.”