Late post. But an important story that should not be neglected.~ctm
Surprise judgment means government must halt capacity market scheme
Thu 15 Nov 2018 07.59 EST Last modified on Fri 16 Nov 2018 11.39 ES
The UK’s scheme for ensuring power supplies during the winter months has been suspended after a ruling by the European court of justice that it constitutes illegal state aid.
The scheme subsidises owners of coal, gas and other power stations so the plants are ready to ensure that electricity for businesses and homes is available at peak times in winter.
The UK has also been blocked from holding any capacity market auctions for energy firms to bid for new contracts to supply backup power in the future. National Grid said ministers had instructed it to indefinitely postpone auctions that had been planned for early 2019.
The government said it was disappointed by the judgment but insisted that power supplies were not at risk.
On Thursday, the ECJ ruled that the European commission had failed to launch a proper investigation into the UK’s capacity market when it cleared the scheme for state aid approval in 2014.
The ruling renders the capacity market unlawful for a “standstill period” while ministers seek state aid approval from the European commission. It is not clear how long that will take, but it could be many months.
The court’s surprise judgment was an embarrassment for Greg Clark, the business secretary, who hours later outlined his vision for the future of the power market to energy executives at an event in London.
Industry watchers said the decision would send shockwaves throughout the sector.
“The consequences are absolutely huge. Immediate cessation of payments is going to have immediate consequences for electricity generators that were relying on them,” said Ed Reed, head of research at analysts Cornwall Insight.
While electricity supplies were unlikely to be at risk, he added, companies may seek to recoup lost capacity market revenues through wholesale power prices instead.
“The lights are not going to go out. We certainly have enough power stations. But the consequence is the market price might go up.”
Tom Glover, UK country chair of RWE, which owns the biggest fleet of gas power plants in the UK, said he was “deeply disappointed” and his company was facing a “significant negative hit” to its earnings.
Bernstein Research said the suspension of payments would hit earnings at British Gas owner Centrica, plus RWE, Uniper and SSE.
Sara Bell, founder and CEO of Tempus Energy, which started the challenge in 2014, said: “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.”
The company believes that the capacity market favours fossil fuel generation at the expense of alternative ways of securing electricity supplies, such as “demand side reduction”, where companies reduce electricity demand at times of need.
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