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Electricity Market Reform: Capacity Market

Capacity Market will ensure security of electricity supply by providing a payment for reliable sources of capacity.

Part of the government’s Electricity Market Reform package, the Capacity Market will ensure security of electricity supply by providing a payment for reliable sources of capacity, alongside their electricity revenues, to ensure they deliver energy when needed. This will encourage the investment we need to replace older power stations and provide backup for more intermittent and inflexible low carbon generation sources.

The Capacity Market has also been designed to support the development of more active demand management in the electricity market.

6 December 2018: Capacity Market State Aid process

The UK government is working closely with the European Commission on the necessary steps for the GB Capacity Market (CM) scheme to be investigated as quickly as possible. This follows the judgment of the General Court of the Court of Justice of the European Union in Case T-793/14 and the standstill period it has imposed on the CM.

The Court did not find the design of the GB CM to be incompatible with State aid guidelines. As such, we are exploring together with the Commission the most rapid and effective path to conduct the formal investigation into the scheme in a way that meets all process requirements referred to in the judgment. The Commission envisages issuing an Opening Decision to open the formal investigation in early 2019. Subsequently, third parties will be able to submit comments on the decision.

It is one possible outcome of the investigation that the Commission reaches a positive decision after its investigation. This would mean that:

  • aid granted under the GB CM before the judgment would be considered compatible with the internal market (such as capacity agreements arising from auctions held to date, and capacity payments in respect of those agreements)
  • the results of all auctions to date would stand, and further auctions could be held

At the request of the UK government, National Grid is continuing to operate the Capacity Market scheme in the meantime, short of making payments, to ensure that capacity providers may be eligible for deferred payments after the standstill period (subject to State aid clearance). Additional actions will be taken to explore continuity in supplier charging arrangements.

We are working closely together with the Commission to ensure that the Commission has everything necessary to enable it to re-consider the case for approval of the CM scheme as quickly as possible.

The UK government will hold a T-1 top-up auction during summer 2019, for delivery in winter 2019/20, making any agreements conditional on the outcome of the Commission’s formal investigation. The UK government will shortly consult on necessary regulatory changes to allow for the possibility of a T-1 auction.

We will ensure that an appropriate process is followed in seeking the Commission’s State aid clearance for the GB CM scheme and that any mechanism to ensure security of supply in the UK is technology neutral and in line with the Guidelines on State aid for environmental protection and energy 2014-2020. We look forward to updating stakeholders on progress.

17 November 2018: Further information on the judgment

Thursday’s State aid judgment against the European Commission on the Tempus case was decided on procedural grounds. The Court held that the Commission should have consulted more fully before granting State aid approval in 2014. It was not a challenge to the nature of the Capacity Market mechanism itself. The judgment removes State aid approval for the Capacity Market, preventing the UK Government from holding any capacity auctions or making any capacity payments under existing agreements until re-approval.

Impact of the judgment:

National Grid has confirmed that they do not believe the judgment will cause any risk to security of supply this winter. We are working closely with them to ensure that market participants are informed of the judgment.

Next steps:

We are now considering the judgment in detail alongside the European Commission, and are working to support the Commission as they consider the legal options available to them.

We believe the Capacity Market is an effective mechanism that is designed in such a way as to minimise costs to consumers. The design of the Capacity Market has not been called into question, and our focus is therefore on ensuring it can be reinstated as soon as possible.

As part of this, we are seeking immediate State aid approval for a T-1 auction that will cover winter 2019/20. Alongside this, we are working to reinstate the full Capacity Market regime and are discussing the swiftest means of doing so with the Commission.

The Government and National Grid will ensure that market participants are kept updated.

15 November 2018: Government response to Tempus Energy Capacity Market State Aid Challenge

Today the General Court of the Court of Justice of the European Union found in favour of Tempus Energy, against the European Commission, annulling the Commission’s State aid approval for the UK Capacity Market. We are already working closely with the Commission to aid their investigation and seek timely State aid approval for the Capacity Market. The ruling does not change the UK Government’s commitment to delivering secure electricity supplies at least cost, or our belief that Capacity Market auctions are the most appropriate way to do this. The ruling will not impact security of supply this winter.

This ruling imposes a ‘standstill period’ on the Capacity Market. We are working with National Grid to contact affected parties.

This page contains all the general information on the Capacity Market including the Capacity Market Regulations and Rules. Specific information on the auctions can be found at:

Capacity Market stakeholder events

Capacity Market Rules

The rules provide the detail for implementing the operating framework set out in regulations. This means that the rules focus on the technical and administrative rules and procedures for how the Capacity Market operates and includes matters such as procedures relating to the day-to-day running of the Capacity Market, the process by which capacity providers pre-qualify, and rules for running capacity auctions and issuing capacity agreements to successful bidders.

  1. Capacity Market Rules
  2. Draft Capacity Market Rules 2014

Implementing Electricity Market Reform (Chapter 3)

Implementing Electricity Market Reform provides stakeholders with a comprehensive overview of EMR policy. The document includes chapters on the two main mechanisms that the government is introducing to reform the electricity market: Contracts for Difference (CFDs) and the Capacity Market, as well as detail on measures to encourage greater energy efficiency through the Electricity Demand Reduction (EDR) programme.

Impact Assessment on the Capacity Market (June 2014)

The June 2014 impact assessment provides the rationale for why the government is intervening in the market and the costs and benefits of the intervention.

  1. Proposals for implementation of Electricity Market Reform

Final Capacity Market Design presentation

A brief outline of the reasons a Capacity Market was introduced, and summary of the final design for the Capacity Market.

  1. Final Capacity Market Design presentation

Consultation and Amendments to Capacity Market Rules 2014

Consultation on proposed amendments to the Capacity Market Rules 2014 and explanation of some immediate amendments to the Capacity Market Rules 2014.

  1. Consultation and Amendments to Capacity Market Rules 2014

Reports and research

  1. Future potential for Demand Side Response in Great Britain
  2. Price duration equivalence report

Setting Capacity Market parameters

  1. Setting Capacity Market parameters
Published 24 July 2014
Last updated 6 December 2018 + show all updates
  1. Capacity Market State Aid Process statement published.
  2. Further information on the judgment 17 November 2018
  3. Government response to Tempus Energy Capacity Market State Aid Challenge published
  4. DECC, Ofgem, National Grid, ESC Event Capacity Market Stakeholder Workshop discussion summary
  5. Letter from Amber Rudd about the Electricity Market Reform capacity market auction 2015.
  6. Capacity Market - location of provisional results
  7. Update to the target capacity for the Capacity Market auction
  8. First published.