Capacity Market Suspension - ?European Commission to appealInsights into energy storage and grid flexibility trends shaping the UK energy landscape.

The European Commission (EC) has lodged an appeal against the decision to suspend payments under the Capacity Market (CM) on State Aid grounds. The CM is a scheme introduced to help guarantee the UK’s future security of supply. The date that the appeal was lodged is listed as 25 January, which was the deadline for appeals.

Suspension

The original decision to suspend the CM was made by the General Court of the European Court of Justice (ECJ) in November 2018 on the grounds that the EC had failed to properly investigate the CM when it was originally cleared for State Aid approval in 2014.

What next?

According to commodities analysts S&P Global Platts, this appeal does not automatically suspend the ruling, but the EC can ask the ECJ to consider lifting the suspension until the appeal is decided. If successful, the appeal would lead to the ruling being overturned and the CM restarting.

No plan B

The government was criticised earlier in January by MPs for not providing a plan B in the event the CM is not reapproved. Business Energy and Clean Growth Minister Claire Perry said, in a letter published on 10 January, to Chair of the Parliamentary Business, Energy and Industrial Strategy Committee, Rachel Reeves, that the government expected “the EC to publish an Opening Decision on the CM investigation early this year, with their final decision following later in the year”.

In response, Reeves welcomed the government’s “clarity on their next steps in response to the ECJ ruling on the CM”. However, she went on to say that “the Government’s approach rests on EC reapproval, doing little to suggest there is any preparation work on a back-up plan in the event of a negative EC decision”. She urged the government to come up with a plan B “so that businesses and investors can ensure the UK’s electricity system is prepared for next winter, whatever the EC’s ruling”.

The future of the Capacity Market remains up in the air and, with the average time taken for a decision to be made on ECJ appeals listed as well over a year, its future is set to remain uncertain for the time being.

The UK capacity market was reinstated after the European Commission approved a modified scheme under revised state aid rules. Since its return, the UK capacity market has continued to hold annual and transitional auctions, securing contracted capacity from generators, storage operators and demand-side response providers for multiple years ahead.

For UK businesses, the capacity market matters primarily through its effect on electricity bills. UK capacity market charges appear as part of network costs and levies — typically accounting for one to three percent of a business electricity bill. However, some businesses can also participate in the UK capacity market directly as demand-side response providers, receiving payments for committing to reduce load at times of system stress.

Catalyst Digital Energy helps UK businesses understand the full breakdown of their energy costs — including UK capacity market and network charges — and identify opportunities to reduce exposure. For an analysis of your capacity market costs and demand flexibility options, speak to one of our energy consultants today.