As set out to the House in the statement of 6 December 2018, the European Commission was expecting to make its initial decision regarding the UK capacity market in early 2019. The Commission has today confirmed that it is moving on to the next phase of its investigation into the capacity market. This is an important first step as we work to reinstate state aid approval for the capacity market as soon as possible.
In its announcement the Commission confirms that the General Court of the European Union did not rule that the GB capacity market was incompatible with state aid rules. The Commission has also made clear that the Court ruled on procedural grounds. This was on the basis that the Commission should have opened an in-depth investigation on certain elements of the scheme related to participation by demand side response operators.
In accordance with the Court’s judgment, the Commission has therefore launched a further investigation focusing on particular elements of the capacity market. We understand that this investigation will cover past and future capacity payments, including deferred payments in respect of the standstill period. Since 2014 the Commission has approved state aid for six capacity markets similar to the GB scheme. We will continue to work closely with the Commission as its investigation progresses and will ensure that market participants are regularly updated.
Separately, the Commission has recently chosen to appeal the General Court’s judgment that it did not follow the proper process to conclude in 2014 that the capacity market was compatible with EU state aid rules. I can confirm today that the UK Government will be supporting this appeal. The appeal does not affect the Commission’s separate process for considering state aid approval for the current capacity market scheme.