UK Capacity Market suspended

The UK Capacity Market has been suspended following a Tempus Energy challenge and landmark European Court of Justice (ECJ) ruling.

UK Capacity Market suspended

The UK’s National Grid caters for ‘peak demand’ scenarios via the Capacity Market established by the UK Government in 2014. Tempus Energy brought its challenge on the basis that the design of this market “ensures profits for coal, gas and diesel generators, leaving cheaper, cleaner alternatives virtually unable to compete.”

In a statement the Department for Business, Energy and Industrial Strategy (BEIS) said: “Today 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 State aid approval for the UK Capacity Market. 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.”

Tempus claim the ruling opens to the door to an overhaul of UK energy policy.

Commenting on the ruling by the European Court, Sara Bell CEO of Tempus Energy said: “A customer revolution is on the cards. 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.

 “Reducing our reliance on fossil fuels and increasing our use of renewables has the added benefit of delivering better air quality and bigger carbon cuts across the country.”

A recent study by Poyry Management Consultants and Imperial College found integrating new sources of flexibility – such as customer demand flexibility – to manage the energy system would save between £3.2bn and £4.7bn each year.

By streamlining their energy use, customers can participate too. As ‘demand-side’ energy providers, customers can earn revenue and make significant savings by avoiding using the grid at peak times. New, ‘smart’ technology allows customers to do this automatically and easily.

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.

“If the Government is serious about decarbonising energy at the lowest cost to the customer, it must design a market that encourages, not stifles, environmental friendly technology.

“The energy transition is about supporting smart technology and equipping the consumer to manage their own energy – not funding fossil fuels.”

 

Industry reaction:

Mark Hollands, Head of energy strategy at BSR, said: “The decision to uphold Tempus Energy’s claim was the correct one. The capacity market is flawed and needs restructuring with a balanced approach to all technologies, which is currently lacking. However, the way this point has been made and the resulting suspension of the capacity market is potentially damaging to investor confidence and the energy industry as a whole.”

 

Matthew Clayton, managing director of Thrive Renewables, said: “The capacity market was another short-term fix applied to our energy system, which has been over-complicated from 20-years repeated patching, tweaking and knee-jerk reactions. The labyrinth of patches makes it a very difficult environment for long-term capital-intensive infrastructure investment decisions. 

“A systematic approach, reflecting the objectives of competitively priced power, energy security and environmental performance, is required. The answer could be to make the capacity market technology agnostic or removing it, this would level the playing field a little further and allow the UK to benefit from the most affordable and sustainable solutions sooner.”

 

Lawrence Slade, chief executive, Energy UK, said: “We are extremely disappointed by today’s General Court judgment as the capacity market has proven that it can successfully deliver security of supply at the lowest cost to consumers.

“We are already working closely with BEIS and are fully supportive of their efforts to work with the European Commission to reinstate future auctions and continue the capacity market scheme.

“Given the serious financial implications for capacity providers as well as the need for investor certainty and security of supply, this issue needs to be resolved as soon as possible.”

 

Richard Black, director, Energy and Climate Intelligence Unit, said: “The court’s decision makes no difference to power supplies this winter but opens a number of interesting questions for the next few.

“The government says it’s expecting to get the capacity market re-approved – but how long will this take, how deeply will the European Commission probe this time, and what changes will it require to the market’s design, if indeed it approves it at all?

“BEIS is seeing this as a challenge; but actually, the court has presented it with a massive opportunity to constructively re-think a measure that while keeping the lights on is working against other government aims on cost and decarbonisation.

“Re-shaping the market to incentivise battery storage and genuine demand-shifting rather than dirty diesels will bring in a system that’s cheaper for consumers; prioritising low-carbon capacity would speed the demise of coal and gas, helping ministers cut emissions faster, which they know they have to do in order to meet climate targets.”

 

Association for Decentralised Energy director Dr Tim Rotheray said: “Industry raised concerns about the need for a level playing field for DSR when competing for Capacity Market contracts and this announcement is therefore not a surprise.

“It is industry that will suffer the most from today’s ruling, which leaves the market in limbo, without access to revenue streams it had been guaranteed by Government.
 
 
“If Government is serious about growing the flexibility market to deliver a decarbonised, cost efficient system, we hope it will work with the European Commission to ensure that the state aid approval process runs smoothly and that any necessary reforms to the Capacity Market are made as soon as possible.”

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