European Commission approves the British capacity market scheme

The European Commission has approved again the British capacity market scheme under EU State aid rules. The in-depth investigation concluded that the scheme was necessary to guarantee security of electricity supply in the United Kingdom and was in line with EU energy policy objectives, and did not distort competition in the Single Market.

The British Capacity Market was introduced in 2014 to safeguard security of electricity supply. Under this scheme, auctions are held to ensure security of electricity supplies. Successful bidders are required to provide capacity at times of stress events on the electricity system in return for a steady payment for the duration of the capacity agreement (1 to 15 years), or face financial penalties.

The European Commission cleared the scheme in 2014, considering it compatible with EU State aid rules. Yet, in November 2018, a company operating in the market appealed this decision and the EU General Court annulled it, considering that the Commission should have investigated further on some elements of the scheme, such as the participation of energy consumers offering to cut their electricity consumption during peak hours. Consequently, the European Commission opened an in-depth investigation procedure in February 2019 to reassess the compatibility of the British capacity market with EU state aid rules.

The United Kingdom has committed to improve the scheme. It will lower the minimum capacity threshold for participating in the auctions, and review the direct participation of foreign capacity, the participation rules for new types of capacity, the access to long-term contracts, the volume in the year-ahead auction and the compliance with the new Electricity Regulation.