Utility Week

6 | 23RD - 29TH NOVEMBER 2018 | UTILITY WEEK News Analysis T he energy industry was already in turbulent waters. Suppliers were gearing up for the fast-approaching introduction of the price cap on default tar- iffs in January. Ofgem had confirmed that the mutualisation process for the Renewables Obligation scheme would be triggered for the first time ever due to missed payments – a sign perhaps of imminent failures. And ministers were resigning in droves in protest at the terms of the proposed EU withdrawal agreement, raising the prospect of both a no- deal Brexit and the collapse of the current government. Then on Thursday last week the European Court of Justice (ECJ) revoked the state aid clearance for the capacity market granted by the European Commission in 2014 – render- ing the scheme illegal and sending shock- waves through the industry. The delivery body for the mechanism, National Grid, said the mechanism would be forced to enter a "standstill period". As a result, the government is now pre- vented from "holding any capacity auctions, making any capacity payments under exist- ing agreements or undertaking any other action which could be seen as granting state aid until the scheme can be approved again". National Grid said it had received instruc- tions from business and energy secretary Greg Clark to "postpone indefinitely" the upcoming T-1 and T-4 auctions, due take place in January and February respectively. See you in court The ruling came in response to an appeal lodged by Tempus Energy in 2015. The com- pany claimed in its filing that the capacity market discriminated against demand-side response (DSR), for example, due to the shorter contract lengths available to DSR aggregators when compared with new-build generators. Tempus argued during the court case it was paradoxical for the European Com- mission to grant state aid clearance to the UK scheme without holding a formal inves- tigation, and then later to launch a sector inquiry into capacity markets in 2016. The court agreed the commission had failed to scrutinise the mechanism properly. It noted in its ruling that the capacity market had been approved following a preliminary examination lasting just one month and that a formal investigation had not been con- ducted despite objections being raised by several industry players. It said the commission should not have "simply relied" on information provided by the UK government to reach its conclusion and therefore annulled the decision. Speaking to Utility Week, Tempus Energy chief executive Sarah Bell is in triumphant mood. "Every single point in our case apart from one was taken on board almost word for word in the judgement… We could not have got a bigger win," she says. Bell says the ruling has delivered a major blow to fossil fuel generators. She says their "unbelievable lobbying power" turned the capacity market into a subsidy scheme for coal and gas power stations – stifling compe- tition, raising energy bills for consumers and slowing progress on decarbonisation. According to Tempus, around £5.6 billion of capacity payments have been awarded in the auctions to date, of which £4.2 billion – or 74 per cent – has gone to fossil fuel plants. "One of my biggest gripes about this whole scheme is that it's such a big lost opportunity," she says. "Just imagine if we put £5.6 billion into powering the smart energy economy. Capacity market grinds to a halt The ECJ's declaration that the capacity market breaks state aid rules came as a bolt from the blue, and couldn't have landed at a worse time. Tom Grimwood reports. AUCTION NUMBERS T-4 AUCTION FOR 2018/19 (MW) T-4 AUCTION FOR 2019/20 (MW) T-1 AUCTION FOR 2018/19 (MW) TOTAL FOR 2018/19 (MW) T-4 auction (MW) T-1 auction (MW) Total auction (MW) T-4 auction (MW) Total 47.5GW Total 5.8GW Total 53.3GW Total 46.4GW Source: National Grid

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