Capacity Market Reinstatement – what does it mean for projects?

The UK Capacity Market has been reinstated following a detailed investigation by the European Commission. Suspended in November 2018 following a legal challenge that the mechanism had not been properly considered in line with state aid rules, the investigation by the European Commission found that the Capacity Market scheme is in line with EU policy objectives, necessary for the security of energy supply in the UK and not distorting to competition in the EU single market.

The decision will free up some £1bn of deferred payments to Capacity Market participants, which according to UK Energy Secretary Andrea Leadsom, will be paid in January 2020. Mrs Leadsom has also indicated that the three planned auctions to secure capacity up to winter 2023/24 will also go ahead in early 2020.

The long standstill period has had a serious impact on the delivery of many projects planned to offer services under the Capacity Market, with many projects on hold or abandoned pending the outcome of this investigation. Developers will no doubt welcome the reinstatement, which will hopefully allow for a pipeline of sites to be unlocked in coming months, as well as releasing income streams for projects which have already been built out.

Whether the steady stream of investment in capacity services will continue is yet to be seen – however in the current energy market largely lacking in subsidy-based projects or stable, tested energy investment opportunities it is likely the reinvigorated market will attract renewed investment similar to previous levels.