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EU court forces suspension of UK winter power scheme

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The UK's capacity market scheme to ensure power supplies during the winter has been suspended after the EU Court of Justice ruled that it should have been investigated for illegal state aid.

Judges of the General Court held that the Commission should have had doubts in respect of certain aspects of the planned scheme when they considered it in 2014, and initiated a formal investigation procedure in order better to assess its compatibility with state aid rules.

Under the £1bn scheme, the UK remunerates power companies that commit to provide electricity or reduce or delay their electricity consumption during times of system stress, as the Government believed the electricity available was at risk of being insufficient in the near future for the purposes of satisfying high-demand periods, and the electricity market did not offer sufficient encouragement to consumers to reduce their demand in order to remedy the situation.

However the Tempus group of companies complained that the scheme privileged generation over "demand side response" (DSR) in a discriminatory and disproportionate manner that went beyond what was necessary to achieve its objectives and satisfy the state aid rules.

The court took the view that the scheme was "significant, complex and novel", especially as it was the first time the Commission had to assess a capacity market. The amounts involved, over a 10 year scheme, were "particularly high", namely between £900m and £2.6bn per year.

Consequently the Commission was not in a situation where it could simply rely on the information provided by the UK without carrying out its own investigation in order to examine and, if necessary, seek relevant information from, where appropriate, other interested parties for the purposes of its assessment. It had also failed properly to assess the role of DSR within the capacity market.

The ruling renders the capacity market unlawful for a "standstill period" while ministers seek state aid approval from the European Commission, which could take months.

Industry commentators said that while electricity supplies are unlikely to be at risk, companies may seek to recoup lost revenues through wholesale power prices instead.

Click here to access the judgment.

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