On 15 November the General Court of the Court of Justice of the European Union found in favour of Tempus Energy, against the European Commission, annulling the Commission’s decision not to raise objections to the aid scheme establishing a capacity market in the UK.
In statements on 15 Nov and 17 November the UK government responded as follows:
“We are already working closely with the Commission to aid their investigation and seek timely State aid approval for the Capacity Market. The ruling does not change the UK Government’s commitment to delivering secure electricity supplies at least cost, or our belief that Capacity Market auctions are the most appropriate way to do this. The ruling will not impact security of supply this winter.
“This ruling imposes a ‘standstill period’ on the Capacity Market. We are working with National Grid to contact affected parties.
“Thursday’s State aid judgment against the European Commission on the Tempus case was decided on procedural grounds. The Court held that the Commission should have consulted more fully before granting State aid approval in 2014. It was not a challenge to the nature of the Capacity Market mechanism itself. The judgment removes State aid approval for the Capacity Market, preventing the UK Government from holding any capacity auctions or making any capacity payments under existing agreements until re-approval.
Impact of the judgment:
“National Grid has confirmed that [it does not] believe the judgment will cause any risk to security of supply this winter. We are working closely with them to ensure that market participants are informed of the judgment.
“We are now considering the judgment in detail alongside the European Commission, and are working to support the Commission as they consider the legal options available to them.
“We believe the Capacity Market is an effective mechanism that is designed in such a way as to minimise costs to consumers. The design of the Capacity Market has not been called into question, and our focus is therefore on ensuring it can be reinstated as soon as possible.
“As part of this, we are seeking immediate State aid approval for a T-1 auction that will cover winter 2019/20. Alongside this, we are working to reinstate the full Capacity Market regime and are discussing the swiftest means of doing so with the Commission.”
There has been a cautious response from industry.
Dr Alastair Martin, chief Strategy officer at demand response aggregator and business energy supplier, Flexitricity, said: “When the Capacity Market was introduced, Flexitricity gave it one-and-a-half cheers. It answered a need for security of supply and fitted into a reasonably coherent package of measures across the electricity industry. Unfortunately, it contained one major flaw which we, alongside other DSR companies, have ever since campaigned to rectify. This is the unfair treatment of DSR in comparison to fossil-fuelled generation.
“As the leading [UK] player in this [area], we want to ensure not only that our customers get the best possible return on their investment, but that the industry delivers a greener, cheaper and more secure energy system for all.
“We urge government to see this ruling as an opportunity. If fifteen-year contracts are really needed, then these contracts should be open to all this would improve competition and keep the long-term price low. If long contracts are in truth unnecessary, then all capacity types should compete for one-year contracts. International experience and other features of the GB electricity market both indicate that single-year contracts can keep the lights on and the costs down perfectly well.”
Dr Doug Parr, Chief Scientist for Greenpeace UK, said: "The government’s Capacity Market was effectively rigged in favour of old-fashioned dirty generation. Shutting out modern, smart technologies turns out to not only be short-sighted and foolhardy, but potentially illegal. The government should heed the many expert voices explaining that we’re not in the twentieth century any more, and our energy policy needs to reflect that. The smarter technologies that allow easier and faster uptake of clean renewable energy are ready, and urgently needed."