- The Capacity Market is a key mechanism for securing sufficient electricity supplies in GB. It gives suppliers steady payment in exchange for making their capacity available if there is risk of demand for electricity outstripping supply.
- DESNZ is modifying the Capacity Market. As the Capacity Market is a Subsidy Scheme of Particular Interest (SSOPI), non-permitted modifications to the Scheme have to be referred to the SAU.
- The scheme is a SSOPI because a single beneficiary may win an agreement with a value over the £10m threshold.
- Our key takeaways from the Subsidy Advice Unit (SAU) report are:
- On the whole, this was a positive report for DESNZ. DESNZ made good use of evidence and was commended on its approach to Principles A, B and C.
- In response to Principle E, DESNZ set out a range of other subsidy options which were considered (i.e. subsidies which did not involve steady payments). However, DESNZ only set out at a high level alternative options from a non-subsidy perspective. Public authorities should consider whether alternative non-subsidy levers (e.g. regulation) would achieve the desired policy objective through less distortive means.
- The SAU noted that “DESNZ confirmed upon request” why certain figures were considered to be appropriate. This perhaps suggests a change of approach from the SAU, which hasn’t previously followed an iterative process once a subsidy or scheme has been referred.
- The SAU noted that the assessment could have drawn on competition outcomes from the capacity market’s history over the past ten years to assess the future likely impacts on competition. So, when assessing a subsidy or scheme which is already in existence, use the existing scheme’s track record in the assessment.
- DESNZ seemed to rely heavily on evidence from 2014. This was not criticised by the SAU (perhaps signalling a change of approach).
- In respect of energy and environment Principle B, DESNZ could have explained more fully what mechanisms are in place to ensure the capacity market does not relieve beneficiaries from having to bear the full costs of pollution they cause. This serves as a general reminder to fully consider the energy and environment principles as well.
DESNZ, Capacity Market Scheme
Posted in Subsidy Advice Report Tracker.