October 24, 2019 / 10:36 AM / 20 days ago

UPDATE 2-EU Commission approves UK billion-pound power backup scheme

(Adds UK government, Drax comments)

BRUSSELS/LONDON, Oct 24 (Reuters) - The European Commission said on Thursday it had approved the British capacity market scheme which is designed to safeguard the security of Britain’s electricity supply.

The scheme allows British power companies to receive a total of about 1 billion pounds ($1.3 billion) to help cover costs of keeping extra generation available at short notice in the case of sudden supply disruptions.

These payments were delayed after a European court ordered the Commission to secure more details on certain elements of the scheme, such as information on energy consumers willing to reduce their consumption when needed.

The Commission said on Thursday it found no evidence that capacity providers or the consumers ready to reduce consumption were at a disadvantage and found the scheme was in line with European Union state aid rules.

Britain’s government said it would be able to reinstate the mechanism to make payments to capacity providers, including the almost 1 billion pounds deferred during the suspension.

“The vast majority of the back-payments will reach capacity providers in January 2020,” the government said in a statement.

It also said three capacity auctions scheduled for early 2020 would take place, securing capacity needs out to 2023/24.

This month, sources told Reuters they expected the scheme to be cleared, potentially before Oct. 31 when Britain was expected to leave the European Union.

Shares in British power company Drax, which is owed 75 million pounds in capacity payments since the scheme’s suspension, were little changed after the announcement but stocks had soared this month after the Reuters story.

“We will be prequalifying a number of Drax’s flexible and reliable power stations, as well as some of our development projects, later this year with a view to participating in the capacity markets auctions in 2020,” Will Gardiner, Drax Group chief executive, said in a statement.

Shares in SSE, which has said it was unable to recognise payments worth 148 million pounds in the first half of the year from the scheme, were also little changed.

The British government previously said it expected the scheme would be reinstated and companies would receive retrospective payments.

Some non-governmental groups and those working in the industry have sought to disrupt the scheme, which they say has illegally subsidised fossil fuels and made insufficient allowance for more innovative ways of supporting the power grid.

$1 = 0.7755 pounds Reporting by Philip Blenkinsop, Nina Chestney; Editing by David Evans and Edmund Blair

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