S.11. State Aid


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EC approves the British Capacity Market scheme

Thursday, October 24, 2019

Following an in-depth investigation, the EC has approved, under EU State aid rules, the British Capacity Market scheme introduced in 2014 to safeguard security of electricity supply.

In November 2018, following a landmark appeal of the EC’s 2014 decision by British demand response operator, Tempus Energy, the European General Court (EGC) annulled the EC’s decision on procedural grounds. The EC then appealed the EGC’s judgement, however, this did not suspend the Court’s decision.

In February 2019, given the ECG’s judgement and the intention of the UK to maintain the capacity market scheme, the EC launched an in-depth investigation. The EC’s investigation confirmed that the British Capacity Market scheme covering the period 2014-2024 complies with EU State aid rules, in particular with the 2014 Guidelines on State Aid for Environmental Protection and Energy. The investigation also confirmed that the scheme is necessary to guarantee security of electricity supply in Great Britain, is in line with EU energy policy objectives, and does not distort competition in the Single Market. Thus, the EC 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.

Considering recent market and regulatory developments (and other issues identified during the UK’s recent five-year review of the capacity market) the UK has committed to implementing improvements to the scheme for the future. These improvements concern: (i) the lowering of the minimum capacity threshold for participating in the auctions; (ii) the direct participation of foreign capacity; (iii) the participation rules for new types of capacity; (iv) the access to long-term contracts; (v) the volume in the year-ahead auction; and (vi) the compliance with the new Electricity Regulation 943/2019.

The British Business and Energy Secretary, Andrea Leadsom, stated that she is “pleased” about the EU’s approval for the Capacity Market scheme and the UK can start making payments to capacity providers. That also 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. Then, the three capacity auctions scheduled for early 2020 will also take place, which will secure the majority of the UK’s capacity needs up to 2023/24.