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UK: BEIS Update on the UK Capacity Market

  • United Kingdom
  • Competition, EU and Trade
  • Energy and infrastructure - Clean energy

11-12-2018

The UK's Department for Business, Energy and Industrial Strategy (“BEIS”) has now released a further update on the Capacity Market following the General Court’s Tempus Energy judgment which led to the suspension of the CM. A link our previous update can be found here. The key points of this update are set out below:

  1. The UK government has confirmed that it is working closely with the European Commission to ensure that a new State aid investigation into the UK CM is carried out (and completed) as soon as possible.
  2. The Court did not consider the design of the UK CM to be incompatible with State aid rules. In light of this, BEIS and the Commission are exploring the quickest and most effective way to conduct the formal investigation into the scheme ensuring that it meets all the process requirements referred to in the judgment. 
  3. The Commission anticipates issuing a new decision, that will lead to the opening of a formal (in-depth) investigation into the CM scheme in early 2019. Third parties will be able to submit comments as part of that process.  
  4. If the Commission’s formal investigation into the scheme leads to a positive outcome (that is, that the scheme is in line with State aid rules) this would mean that aid granted under the UK CM before the judgment would continue to have been legal (this would include capacity agreements and payments arising from auctions that have been held to date). The results from all existing CM auctions would therefore stand and future auctions could take place.
  5. Separately, although payments under the scheme have been suspended, National Grid continues to operate the UK CM scheme to ensure that capacity providers may be eligible for deferred payments after the standstill period ends (subject to state aid clearance). BEIS is also considering additional steps to ensure continuity in relation to supplier charging arrangements.
  6. The UK Government will hold a T-1 top-up auction in summer 2019 for delivery in winter 2019-20. Any agreements arising from this auction will be conditional on a positive outcome of the Commission’s formal investigation. The UK government is set to consult on required regulatory changes to enable the possibility of a T-1 auction taking place very shortly. 
  7. Finally, BEIS confirms that it will ensure that an appropriate process is taken in seeking a new State aid clearance as well as ensuring 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. Stakeholders will be updated on BEIS’ progress as this develops.

How we can help you

Our team of State aid experts have been involved in advising clients on State aid issues across Europe, including in the context of State aid investigations and litigation in the EU and UK courts and can assist you in working through the implications of this judgment and ramifications for your business as well as potential courses of action in seeking to mitigate its effects. Equally, our energy sector specialist lawyers have the expertise to provide you with detailed advice on the impact of the decision on capacity market auctions and existing contracts.

For more information contact

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