How will the Capacity Market ruling affect energy customers?
Last week, the UK’s Capacity Market scheme was suspended following a ruling by the European Court of Justice.
The scheme subsidises power plant owners to ensure that electricity is available at peak times in winter. Forecasts show that the scheme costs customers £89.87/MWh over the winter peak period (November – February weekdays 16:00-19:00.).
We don’t yet have all of the details, but with the suspension in place we asked our Energy Advice Hub experts what this may mean for UK energy customers.
Will the Capacity Market be reinstated?
The Commission will now need to undertake a formal investigation before providing state aid approval for the capacity market.
The UK government seems relatively confident that it will be reinstated – although timescales are unclear at the moment. In a statement, BEIS said: The design of the Capacity Market has not been called into question, and our focus is therefore on ensuring it can be reinstated as soon as possible. As part of this, we are seeking immediate State aid approval for a T-1 auction that will cover winter 2019/20. Alongside this, we are working to reinstate the full Capacity Market regime and are discussing the swiftest means of doing so with the Commission.”
Will charges to customers be suspended during the investigation?
Although supplier payments have been suspended, we’ve not seen anything as yet that suggests the suppliers will cease passing on the charge to the customer during the ‘standstill’.
ESC Operational Costs, (the administration cost to manage the Capacity Market) is £0.03/MWh and this will still be charged to energy firms. The cost will therefore be passed on to customers.
Will Capacity Market charges to customers be refunded if the scheme is deemed illegal?
If the scheme is found to be illegal following investigation, any charges to date could be refunded.
Suppliers have passed on the costs differently, and costs will vary due to each supplier’s exposure to the market.
What will be the impact on winter peak energy pricing?
We wouldn’t anticipate any impact in the immediate winter peak pricing; however for subsequent periods there could be upward pressure on prices if the incentive to keep coal, gas and other power stations on standby for times of peak demand is removed.
Does the UK need to worry about security of supply this winter?
National Grid has confirmed that they do not believe the judgment will cause any risk to security of supply this winter.
We will keep you up to date on the implications of the Capacity Market ruling as new information becomes available – stay tuned for updates.