European court annuls State Aid clearance for GB Capacity Market

The European Court has annulled a 2014 European Commission decision that the UK’s Capacity Market  passes State Aid tests. The ruling follows a legal challenge submitted by demand response specialists Tempus Energy, which claimed the Capacity Market allows fossil fuels to dominate the market to the detriment of demand side response (DSR).

The ruling means for now government cannot issue Capacity Market payments to energy firms or hold auctions, according to the Guardian.

The Capacity Market was established in 2014. Tempus argued that the market design privileges generation over demand side response (DSR) in a discriminatory and disproportionate manner, which goes beyond what is necessary to achieve its objectives and satisfy State Aid rules. 

The European Court said in its ruling today that the Capacity Market was “significant, complex and novel, especially as it is the first time the Commission had to assess a capacity market. The amounts involved in the multi-year aid scheme, which has been authorised for ten years, are particularly high, namely between £0.9 billion and £2.6 billion per year. Those who will be impacted by the effects of that scheme are existing and new generators and DSR operators, those effects being long term and experienced directly as well as indirectly.”

Given that, the court said it did not believe that the Commission’s brief investigation could dispel all doubts over State Aid. What is more, the Commission took reports from the UK that the market did not disadvantage DSR at face value, without commissioning its own research, and it ignored reports from UK organisations, that DSR would be disadvantaged.

Commenting on the ruling by the European Court, Sara Bell, chief executive of Tempus Energy, said: “This ruling opens the door for cheaper energy – greater use of demand-side innovation would change the way we use electricity in practice, and place customers at the heart of the energy system for the first time.

“Consumers know it pays to be flexible – we’ve been using off-peak trains for years. The energy system is exactly the same. Off-peak power should mean off-peak prices.

“This ruling should ultimately force the UK government to design an energy system that reduces bills by incentivising and empowering customers to use electricity in the most cost-effective way – while maximising the use of climate-friendly renewables”.

Bell added: “Customers are not only footing the bill for this ill-designed scheme, they are also being prevented from accessing its potential benefits themselves.” Commercial customers are already taking advantage of the economic benefits of renewables and electricity storage. However, UK policy has not kept up with the way in which customers are using and generating clean, cost-efficient energy.

See full ruling here

Further reading

See the industry’s views on the ruling

Don’t mention the margin

From the archive: Sara Bell, Tempus Energy chief executive, talks to New Power

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