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Assured Energy Outlook: Issue 27 – December 2018

Energy security scheme suspended after EU Court ruling

The General Court of the European Court of Justice ruled in November that the UK’s Capacity Market (CM) – the main system to guarantee security of electricity supply – is no longer legal under State Aid rules, resulting in the UK government suspending payments under it.

On 6 December, the government announced that the CM would continue to operate without payments, adding that the European Commission should formally commence the process for the CM to regain State Aid clearance in early 2019. The electricity system operator National Grid ESO has said it has been instructed to “postpone indefinitely” the upcoming auctions.

Head of Research at energy consultants Cornwall Insight, Ed Reed, said there would be “immediate consequences” for generators that relied on the payments but added: “the lights are not going to go out – we certainly have enough power stations – but the consequence is the market price might go up.”

Flexibility-focused energy firm Tempus Energy brought the case to court, claiming that the CM unfairly favoured conventional electricity generators over demand-side response (DSR) providers. DSR enables energy users to commit to reducing or shifting their energy consumption to help balance demand on the system and be rewarded with cheaper electricity or earning revenue. The court ruled that the European Commission had failed to investigate the CM properly when it cleared it for State Aid approval in 2014.

Another consequence of this suspension is that domestic and non-domestic energy suppliers, which will have made payments toward the Capacity Market, will see some of those payments returned to them before the end of 2018.


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