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ADE response to Capacity Market state aid challenge

15 November 2018

Participants in the Capacity Market could lose significant revenue as a result of today’s ruling suspending state aid approval. The Association for Decentralised Energy (ADE) is urging Government to address the ruling as a priority if it is serious about ensuring secure energy supply through low carbon flexibility.

The General Court of the European Union today annulled the Commission's decision not to raise objections to the aid scheme establishing the UK Capacity Market, ruling that the Commission failed to carry out a full investigation and failed to properly assess the role of Demand Side Response (DSR) within the Capacity Market. 

The DSR market in Britain has grown quickly, with 1,206 megawatts (MW) of DSR awarded agreements in the 2017 Capacity Market auction, up from 174MW in the first 2014 auction. However, DSR only has access to one-year contracts in the auction, in contrast to generation, which can access three and fifteen-year contracts. 

ADE Director Dr Tim Rotheray said:

Industry raised concerns about the need for a level playing field for DSR when competing for Capacity Market contracts and today’s announcement is therefore not a surprise. It is industry that will suffer the most from today’s ruling, which leaves the market in limbo, without access to revenue streams it had been guaranteed by Government.

National Grid has set an aspiration to meet 30–50[1] per cent of balancing capability from demand side response by 2020 to help keep generation and demand in balance and provide capacity at the least cost for consumers, which could save UK energy consumers £600 million by 2020 and £2.3 billion by 2035[2].  

Dr Rotheray added:

If Government is serious about growing the flexibility market to deliver a decarbonised, cost efficient system, we hope it will work with the European Commission to ensure that the state aid approval process runs smoothly and that any necessary reforms to the Capacity Market are made as soon as possible.

References:

[1] Demand side flexibility, Power Responsive Annual Report 2016 

[2] Smart Power, Energy report by National Infrastructure Commission, March 2016

Contact

Communications Manager

Jennifer Fry 

Tel: +44 (0)20 3031 8741

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