Capacity Market to return after European Commission gives approval

The European Commission has approved the Capacity Market (CM) after an eight-month investigation.

The commission, which considered feedback from 35 respondents – including energy networks, generators, interconnect operators and trade bodies – found that the market does comply with EU State Aid rules.

The commission initially approved the scheme when it was introduced in 2014 but a successful appeal at the end of last year forced a new in-depth investigation, during which time the market was suspended.

The investigation confirmed that the CM is necessary to guarantee security of electricity supply in the UK, is in line with EU energy policy objectives, and does not distort competition in the Single Market.

The commission did not find any evidence that the scheme would put demand response operators or any other capacity providers at a disadvantage. It also pointed to improvements being implemented by the UK government considering the following:

• 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
• The compliance with the new electricity regulation, which came into force in June

Energy UK chief executive Lawrence Slade said: “The suspension of the Capacity Market threatened serious consequences so we are delighted with today’s decision which is good news for the whole industry and its customers. The CM 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 CM 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.”

Dr Jonathan Marshall, head of analysis at the Energy and Climate Intelligence Unit (ECIU) said: “Despite the EC decision to give it the green light, serious questions persist on the necessity of a capacity market. There remains little evidence that it is needed to keep British lights on, there are major doubts if it is the right tool to deliver low-carbon electricity during the 2020s, and it continues to shut out innovative and disruptive technologies that are vital in the transition to a smarter, cleaner and cheaper electricity system.

“Without changing tack, the UK is now at risk of continuing to shovel cash towards old coal, gas and nuclear power stations, which would be running anyway, rather than clearing space for low carbon generation and innovative technologies to achieve their full potential, bringing energy bills down with them.”