Why has the Capacity Market been suspended?
The Capacity Market scheme subsidises owners of coal, gas and other power stations so that their plants are ready to supply electricity for businesses and homes at peak times during the winter months.
Tempus Energy, a clean technology firm submitted a legal challenge to the European Court of Justice (ECJ), in which they argued that the mechanism behind the Capacity Market heavily favoured fossil fuel generators and not cleaner technologies such as theirs.
The ECJ ruled in favour of Tempus Energy and suspended the Capacity Market, judging that the UK based scheme is essentially acting as a form of illegal state aid.
The effect on customers’ electricity bills
The Capacity Market charge, which covers the cost of running the Capacity Market and is responsible for ~3% of the customer’s electricity invoice is likely to cease temporarily. The ongoing cost impact for customers depends on the outcome of the case with the European Court of Justice.
Scenario 1 – The government is given approval to carry on with the capacity market, in which case, charges resume.
Scenario 2 – The government loses the case, in which case suppliers would be required to provide customer refunds.
OFGEM have also advised that they would approve suppliers collecting funds via customers’ bills if the proceedings indicated the market could be reinstated.
The effect on the UK power market
The UK government has stated its confidence in the existing number of power plants to cover demand, insisting that power supplies are not at risk. However, it is very likely that the ruling will have a major impact on generators going forward.
Some suppliers have taken the initiative of rolling out “time-of-use” tariffs in 2018 which aim to give customers further incentive to move their energy consumption away from periods of peak demand.