The UK capacity market, the main government policy for “keeping the lights on”, has been rendered illegal after a surprise EU court ruling issued on 15 November. The market is a key plank of the government’s 2013 “Electricity Market Reform” (EMR), designed to decarbonise UK electricity supplies while maintain security of supply and minimising costs. Nearly £6bn of capacity contracts had been handed out, mainly to old coal, gas and nuclear plants. The market was approved in a 2014 decision by the European Commission, which said it complied with rules on “state aid”. In its recent ruling, the General Court of the EU annulled this approval and said the commission should have opened a more detailed formal investigation into the market design. Since the ruling, the capacity market has been put on hold. This means that no payments will be made to power firms, including under contracts for this winter worth around £1bn. It also means the next capacity auctions are indefinitely postponed. They were due to be held in January 2019. The UK government says the ruling was “procedural”. It will seek to have the market re-approved as soon as possible. Tempus Energy, which won the ruling after a four-year court battle, says the market will have to be reformed to allow greater access for “cheaper, cleaner alternatives”. Simon Virley, partner and head of energy at consultants KPMG tells Carbon Brief: “This is much more significant than just a ‘procedural matter’ as [secretary of state] Greg Clark insisted last week.” Virley led the EMR team at the then-Department of Energy and Climate Change (DECC). It could take “as long as 20 months” to resuscitate the capacity market, another expert tells Carbon Brief. Both say power plants are unlikely to close this winter, despite the ruling. But some of the UK’s six large coal sites could then close earlier than expected, along with some older gas stations.
Carbon Brief 22nd Nov 2018 read more »
On 15 November 2018, the EU’s General Court annulled the European Commission’s decision to approve Great Britain’s Capacity Market. In short, this means that: The Capacity Market and all associated subsidies are suspended, pending a decision on whether they comply with EU law; and an investigation will be opened, which experts and interested parties should feed into. A summary of the judgment is below – homing in on aspects that should be of interest to several expert audiences – including energy market experts and State aid lawyers. This case was brought in December 2014 by Tempus Energy, a UK-based ‘demand side response’ (DSR) operator. The action was based on Tempus’s view that the GB Capacity Market was designed to favour fossil fuels (gas, coal and diesel generators), at the expense of cleaner technologies. They argued that this grants unnecessary extra profits to polluting energy companies, and unnecessarily increases consumer bills. The core of their case – which the Court agreed with – is that the Commission approved the Capacity Market without properly assessing the claims made by Tempus and other market players and experts that it was badly designed.
Client Earth 19th Nov 2018 read more »