EU regulator clears UK’s billion-pound power back-up scheme

Drax power station in Yorkshire, UK. Shares in Drax soared earlier this month when sources told Reuters they expected the scheme to be cleared. [Shutterstock]

The European Commission said on Thursday (24 October) it had approved the British capacity market scheme which is designed to safeguard the security of Britain’s electricity supply.

The scheme allows British power companies to receive a total of about £1 billion (€1.16bn) to help cover costs of keeping extra generation available at short notice in the case of sudden supply disruptions.

These payments were delayed after a European court ordered the Commission to secure more details on certain elements of the scheme, such as information on energy consumers willing to reduce their consumption when needed.

The Commission said on Thursday it found no evidence that capacity providers or the consumers ready to reduce consumption were at a disadvantage and found the scheme was in line with European Union state aid rules.

“Notably, the Commission did not find any evidence that the scheme would put demand response operators or any other capacity providers at a disadvantage with respect to their participation in the scheme,” it said in a statement.

Back-payments expected in January

Britain’s government said it would be able to reinstate the mechanism to make payments to capacity providers, including the almost £1 billion deferred during the suspension.

“The vast majority of the back-payments will reach capacity providers in January 2020,” the government said in a statement.

It also said three capacity auctions scheduled for early 2020 would take place, securing capacity needs out to 2023/24.

This month, sources told Reuters they expected the scheme to be cleared, potentially before Oct. 31 when Britain was expected to leave the European Union.

Shares in British power company Drax, which is owed £75 million in capacity payments since the scheme’s suspension, were little changed after the announcement but stocks had soared this month after the Reuters story.

“We will be prequalifying a number of Drax’s flexible and reliable power stations, as well as some of our development projects, later this year with a view to participating in the capacity markets auctions in 2020,” Will Gardiner, Drax Group chief executive, said in a statement.

Shares in SSE, which has said it was unable to recognise payments worth 148 million pounds in the first half of the year from the scheme, were also little changed.

The British government previously said it expected the scheme would be reinstated and companies would receive retrospective payments.

UK capacity market déjà vu: A solution that’s still in search of a problem

The European Commission is currently examining a UK government request to approve its so-called “capacity mechanism” to finance back-up power plants. However, there is no evidence to suggest that such a mechanism is necessary to bring forward new investment in electricity generation, argue Philip Baker and Michael Hogan.

Critics

Some non-governmental groups and those working in the industry have sought to disrupt the scheme, which they say has illegally subsidised fossil fuels and made insufficient allowance for more innovative ways of supporting the power grid.

Serious questions persist on the necessity of a capacity market,” said Jonathan Marshall, from the Energy and Climate Intelligence Unit (ECIU), a non-profit group.

“There remains little evidence that it is needed to keep British lights on,” he added in a statement, saying the scheme will “continue to shut out innovative and disruptive technologies that are vital in the transition to a smarter, cleaner and cheaper electricity system”.

Britain’s capacity market for electricity: Lessons for Europe

The UK’s market-wide capacity mechanism for electricity provides a solution to a supply problem that has yet to emerge, writes Phil Baker. A targeted strategic reserve is likely to be a more cost-reflective alternative, he argues.

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