Following the decision on 15 November 2018 by the European Court to annul the European Commission’s approval for the UK capacity market, the Government are updating the House on the process that will be followed to ensure that the capacity market can be reinstated as speedily as possible.
As National Grid has already confirmed, the court ruling will not impact security of supply this winter. The ruling does not change the UK Government’s view that the capacity market is the right mechanism to deliver secure electricity supplies at least cost.
The Commission has confirmed that it will be conducting an investigation into the original state aid notification for the capacity market. This investigation covers the capacity market agreements already entered into including those for 2018-19 and 2019-20.
A positive final state aid decision would allow payments to be made to those agreement holders that have met their obligations during the standstill period. The Commission expects to make its opening decision on the issues covered in the investigation by early 2019.
To support this, National Grid will continue to operate the capacity market as normal but without payments being made to agreement holders. This will ensure that market participants can operate as normal and will also aid the calculation of future capacity market payments.
The Government have also confirmed an intention to hold a T-1 top-up auction during the summer of 2019, for delivery in 2019-20. Agreements secured through this auction will be conditional on the outcome of the Commission’s formal investigation.
The Government are also considering the viability of the capacity market supplier charge continuing to be collected under the expectation that payments will be passed on to agreement holders at the appropriate time.
A technical statement is being published which provides further detail to market participants on the next steps as agreed with the Commission. This can be found on the BEIS website.
We will continue to update market participants.