EU approves UK plan for power capacity auction in Jan. 2017

LONDON, Dec (Shanghai: 600875.SS - news) 5 (Reuters) - The European Commission has approved British plans to hold an additional power capacity auction in January, it said on Monday, to ensure electricity supply through a looming power crunch.

"The UK has taken specific measures to ensure that the supplementary capacity auction will be competitive, for instance by encouraging new build generating capacity to accelerate completion and by attracting as many demand response operators as possible to the supplementary capacity auction," the Commission said in a statement.

"The Commission is therefore satisfied that the risk of overcompensating participating capacity providers has been reduced to the minimum," it added.

Britain may face electricity supply shortages over the next few winters as coal plants close due to weak economic conditions and investors say there is little incentive to build new power plants.

Under the government's capacity market scheme, the owners of power plants are paid to provide electricity at short notice.

Earlier this year, the government announced plans to conduct an early capacity auction in Jan. 2017 for delivery in the winter of 2017/18, effectively bringing the scheme into operation a year earlier than initially proposed.

Britain's third capacity market auction, for delivery in 2020/21, will begin on Tuesday. (Reporting by Nina Chestney; Editing by Ruth Pitchford)