Room for improvement on capacity mechanisms, says Brussels

European governments have a lot of room for improvement in how they design their capacity mechanisms and prove they are necessary, according to the European Commission.

The comments come as part of an ongoing state aid investigation into the mechanisms. The commissioner in charge of competition policy Margrethe Vestager said: “European consumers and companies should not have to face blackouts, and capacity mechanisms can help to reduce this risk. At the same time, consumers should not overpay for electricity and competition should not be undermined.”

Launched in April last year, the EC investigation into capacity mechanisms has initially looked at 11 member states including France, Germany, Italy and Spain but not Britain. However, speaking shortly after it began, senior policy analyst at the Renewable Power Association Frank Gordon said the results of the investigation could conceivably force change in UK.  

The newly released interim report raised four main concerns over the design of capacity mechanisms: eligibility requirements; cross-border involvement; the allocation process; and the way providers are paid for providing capacity and penalised if they fail to do so.

The commission has now launched a public consultation as part of the state aid investigation and will publish its full findings later this year.

Britain’s capacity market was given state aid approval in July 2014 after being the subject of a dedicated probe – the commission’s first ever investigation into the mechanisms.

At the time commission vice-president Joaquín Almunia said: “The UK capacity market embraces the principles of technology neutrality and competitive bidding to ensure generation adequacy at the lowest possible cost for consumers, in line with EU state aid rules.”

The mechanism was introduced following a “thorough investigation of its necessity,” according to the commission.

Demand side response (DSR) provider Tempus Energy launched a legal challenge with the European Court against the UK’s capacity mechanism in December 2014, on the basis that the eligibility requirements left DSR at a disadvantage.

Responding to the release of the interim report, chief executive of Tempus Energy Sara Bell said: “It is too early to say whether or not the UK’s flawed capacity market will escape a formal review for unlawful state aid. It represents poor value for British bill-payers and tax-payers without achieving real energy security and risks locking the EU into a high carbon, high cost economy for decades to come.”