Following its in-depth investigation, the European Commission (EC) has found that the British Capacity Market scheme (introduced in 2014 to safeguard security of electricity supply) has at all times complied with EU State Aid rules. Click here to access the EC's press release.

Background

Following the EC's finding in 2014 that the State Aid involved in the British Capacity Market scheme (CM Scheme) was compatible with the internal market, a company operating in the market successfully brought proceedings to annul the EC's decision in the EU General Court. Following the EU General Court's Judgment in November 2018, the EC opened an in-depth investigation regarding the CM Scheme in February 2019.

The EC's investigation

The EC's investigation involved receiving and analysing feedback and comments submitted by 35 interested parties, comprised of energy producers and operators. This investigation confirmed that the CM Scheme, covering the period 2014-2024:

  • complies with the 2014 Guidelines on State Aid for Environmental Protection and Energy and is in line with EU policy objectives;
  • is necessary to guarantee security of electricity supply in Great Britain; and
  • does not distort competition in the Single Market.

It is notable that the EC did not find any evidence that the CM Scheme would place demand response operators or other capacity providers at a disadvantage in relation to their participation in the scheme.

Points to note

As the EC has approved the CM Scheme, this decision will be of significant importance to all parties involved in the ongoing Tempus Judicial Review action. The UK Government made changes to the way the CM Scheme operated during the period between the EU General Court's judgment and the date of the EC's decision following its in-depth review (the so-called standstill period). Those changes were designed to ensure that no State Aid was granted pursuant to the CM Scheme during the standstill period. The EC Decision, once it is made available in full, is expected to confirm that the changes made by the UK Government to the CM Scheme were in accordance with the UK's obligations under the State Aid rules during the standstill period.

The Judicial Review action was also seeking to establish whether the UK Government should have commenced recovery proceedings in respect of the State Aid that had been granted following the EC's approval decision in 2014 and the EU General Court's judgement in November 2018. This is a matter that will need to wait for another case to clarify the position.

This decision will be another helpful precedent for the CMA when it eventually takes over responsibility for enforcing the State Aid rules in the UK after Brexit.