Capacity market halt risks undermining investor confidence

The suspension of the electricity capacity market risks further undermining investor confidence in the power sector, which is already shaky as a result of Brexit, the chair of the Business, Energy and Industrial Strategy (BEIS) committee has warned Claire Perry.

Rachel Reeves has written to the energy and clean growth minister outlining industry concerns about the decision by the European Court of Justice (ECJ) last month to suspend the electricity capacity market, which is designed to provide back up power at times of peak demand.

The ECJ ruled in a case, brought by Tempus Energy on the basis that the capacity market scheme discriminates against demand-side response technologies, that the European Commission should have conducted a fuller investigation before granting state aid approval for the scheme.

The commission is expected to begin a formal investigation of the capacity market early in the new year and the UK government has said it will press ahead with next year’s T-1 top up auction next summer.

However in her letter, Reeves raises “substantial industry concerns” about whether this timetable is achievable.

She writes that the halting of capacity payments, which are expected to add up to £1 billion over the coming year, presents difficulties for providers relying on this income and sends “mixed messages” to suppliers.

“This risks undermining confidence in the power sector at a time when the market is already challenged by the uncertainties of Brexit and by the increasing volatility in the wholesale market,” writes Reeves who adds there could be knock on impacts on the prices paid by consumers.

Reeves asks Perry for details about the discussions the government has had with the Commision about the timescale for the investigation and process for re-approving the capacity market.

And she asks if missed capacity market payments will be paid retrospectively to providers and whether BEIS has taken any action to address the concerns raised by Tempus about the design of the scheme, which prompted its case in the ECJ challenge.