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 and the Electricity Settlements Company are 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.
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.
Capacity Market content and external links
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: