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UK GOVERNMENT FACES COURT CASE OVER “UNLAWFUL SUBSIDY” FOR FOSSIL FUELS

Friday December 5th 2014

According to Business Green, ‘The government’s Capacity Market is being challenged in a European Court by independent energy supplier Tempus Energy, which claims it is an “unlawful subsidy” that violates EU State Aid rules.’

The Capacity Market was established last year, under the Energy Act, to ensure generators do not to defer power stations that may be needed to provide back-up capacity. The mechanism offers financial incentives to power suppliers who make an effort to keep capacity available when needed over the course of contracts that run for up to 15 years.

However, Tempus Energy claims that this system prioritises the fossil fuel generation over “cheaper and more reliable” options to reduce demand. The energy firm argues that this contradicts the UK Government’s original aim of keeping the lights on at the lowest possible cost while supporting decarbonisation efforts.

Tempus Energy Chief Executive, Sara Bell, commented: “The Capacity Market was originally set up to keep the lights on at the lowest possible cost; a format that has been used very successfully in the US.

“But an engrained, institutional bias in favour of building new assets to boost supply means that cost effective ‘no build’ technologies for managing demand have been ignored. This will push up electricity bills needlessly and commit consumers to paying for capacity that we would not need if we invested in building demand-flexibility, for those who want to use it.”

The UK scheme has faced criticism in that it increases bills for consumers by imposing charges of up to £2.5bn for keeping peaking power stations open in the first year of the Capacity Market alone.

Tempus wishes to obtain a ruling by the European Court that the State Aid approval for the Capacity Market was unlawful. This would then force a formal inquiry into the scheme and potentially delay the first capacity auctions that are due to be held this month.

Source: http://www.businessgreen.com/bg/news/2384993/uk-government-faces-court-case-over-unlawful-subsidy-for-fossil-fuels