The European Commission has launched an in-depth investigation into the capacity market to determine whether it is compliant with EU state aid rules.

The probe will mainly focus on the participation of demand-side response (DSR).

The capacity market was suspended in November after the European Court of Justice (ECJ) upheld an appeal by Tempus Energy against the commission’s previous decision to approve the scheme.

Judges said the commission had failed to properly address concerns the capacity market discriminates against DSR providers. They said it should have held a full investigation before granting approval.

The commission has now launched such an investigation as part of a reassessment of the capacity market.

Jonathan Marshall, head of analysis at the Energy and Climate Intelligence Unit, said: “By kicking off its investigation, the European Commission should give investors clarity on whether pre-agreed payments will be made, and how the scheme will look going into the future.

“Allowing demand-side response to compete on an equal footing with other technologies is the minimum we can expect from a supposedly technology-neutral system. It will light the fire under a nascent industry, one that will be vital for the new generation of power systems that we will see around the world.

“As one of the tools for balancing variable power sources, boosting demand side response – alongside new interconnectors and storage – will ensure that we can install more renewable energy sources. This will both reduce household bills and cut carbon emissions, a win-win situation.”

Last month the European Commission filed an appeal against the ECJ’s ruling.