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ECJ Quashes UK’s Capacity Market Auctions

November 15, 2018

By Paul Homewood

 

 

 

h/t MrGrimNasty.

 

 

 

I had to check my calendar, to make sure it was not April 1st!

 

 

From the Grauniad:

 

 

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The UK’s scheme for ensuring power supplies during the winter months has been suspended after a ruling by the European court of justice that it constitutes illegal state aid.

Payments to energy firms under the £1bn capacity market scheme will be halted until the government can win permission from the European commission to restart it.

The scheme subsidises owners of coal, gas and other power stations so the plants are ready to ensure that electricity for businesses and homes is available at peak times in winter.

The UK has also been blocked from holding any capacity market auctions for energy firms to bid for new contracts to supply backup power in the future. National Grid said ministers had instructed it to indefinitely postpone auctions that had been planned for early 2019.

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The government said it was disappointed by the judgment but insisted that power supplies were not at risk.

On Thursday, the ECJ ruled that the European commission had failed to launch a proper investigation into the UK’s capacity market when it cleared the scheme for state aid approval in 2014.

The ruling renders the capacity market unlawful for a “standstill period” while ministers seek state aid approval from the European commission. It is not clear how long that will take, but it could be many months.

The court’s surprise judgment was an embarrassment for Greg Clark, the business secretary, who hours later outlined his vision for the future of the power market to energy executives at an event in London.

“The consequences are absolutely huge. Immediate cessation of payments is going to have immediate consequences for electricity generators that were relying on them,” said Ed Reed, head of research at analysts Cornwall Insight.

While electricity supplies were unlikely to be at risk, he added, companies may seek to recoup lost capacity market revenues through wholesale power prices instead.

“The lights are not going to go out. We certainly have enough power stations. But the consequence is the market price might go up.”

Tom Glover, UK country chair of RWE, which owns the biggest fleet of gas power plants in the UK, said he was “deeply disappointed” and his company was facing a “significant negative hit” to its earnings.

Bernstein Research said the suspension of payments would hit earnings at British Gas owner Centrica, plus RWE, Uniper and SSE.

Sara Bell, founder and CEO of Tempus Energy, which started the challenge in 2014, said: “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.”

The company believes that the capacity market favours fossil fuel generation at the expense of alternative ways of securing electricity supplies, such as “demand side reduction”, where companies reduce electricity demand at times of need.

The winter of 2017/18 was the first year the capacity market was in effect, with companies due to receive £990m for 2018/19. More than half of that is still yet to be paid this winter.

The scheme works by energy companies bidding years in advance for billpayer-funded subsidies to provide backup power at crunch times during winter.

Labour said the ruling meant that the government would have to rethink the market.

Alan Whitehead, shadow energy minister, said: “This judgment effectively annuls previous state aid permission to provide subsidies for existing fossil fuel power plants. I have long criticised this bizarre arrangement, which simply throws money at old dirty power stations.”

Richard Black, director of the ECIU thinktank, said the ruling should be seen as an opportunity for the government to reshape market away from fossil fuels and towards battery storage and cleaner technologies.

Clark said the government was already in contact with the European commission and seeking state aid approval, so the capacity market could be reinstated. The business secretary used his speech to celebrate the rise of renewables. “Cheap power is now green power,” he said.

https://www.theguardian.com/environment/2018/nov/15/uk-backup-power-subsidies-illegal-european-court-capacity-market 

My first reaction was to tell the ECJ exactly where they can stick their “judgement”!

What we need to remember is that the Capacity Market was introduced as long ago as 2014, when Ed Davey told us:

The Government will run the first Capacity Market in 2014. This will ensure sufficient electricity supplies from winter 2018 by attracting necessary investment in new and existing generation, as well as other forms of capacity such as demand response

https://www.gov.uk/government/news/new-energy-infrastructure-investment-to-fuel-recovery

The Capacity Market was of course specifically introduced because of the inherent unreliability of wind and solar power, which was being artificially jacked up courtesy of subsidies (which the aforesaid ECJ don’t seem too concerned about).

Under what legal system is it equitable for a company to enter into a contract with government, only to be told four years later it is invalid?

Since 2014, each round of capacity market auction has done little more than pay existing capacity to stick around, rather than shut down – (think coal power plants).

Soon though we will need huge tranches of reliable, new dispatchable capacity to fill the gaps in the 2020s, when coal has gone. If the ECJ say no to the Capacity Market, who on earth will build new gas power stations, which up against obscenely subsidised renewables and punitive carbon taxes will struggle to make any profit at all?

Meanwhile, all the dopey Sara Bell, founder and CEO of Tempus Energy, which started the challenge in 2014, can say is:

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.”

Just think about what she is really saying:

“Empowering customers to use electricity in the most cost-effective way “ – the Capacity Market is intended to ensure electricity is available when the wind does not blow, and the sun does not shine.

Her logic only means one thing – when the wind does not blow, and the sun does not shine, we stop using electricity.

According to the Grauniad she believes that the capacity market favours fossil fuel generation at the expense of alternative ways of securing electricity supplies, such as “demand side reduction”, where companies reduce electricity demand at times of need.

This, in plain English, is utter bollox. Since the very first Capacity Market auction, Demand Side Reduction, along with various storage schemes, have had equal bidding rights to the auctions as any other form of generation.

Quite why the ECJ thinks it is entitled to meddle with the energy security of the UK is a mystery. Why we are letting them is not.

50 Comments
  1. Joe Public permalink
    November 15, 2018 8:58 pm

    If only a mechanism was available to prevent the ECJ meddling in UK matters.

    • November 15, 2018 9:00 pm

      There isIt’s called leaving the EU, something PM May is obviously dead against

    • ellyssen permalink
      November 16, 2018 3:20 am

      You are right. The U.K. must exit the EU. The EU has proven too many times that it is all about money, not about people.

  2. November 15, 2018 8:59 pm

    It’s also notable that the Guardian is increasingly not allowing comments on these issues.

  3. Mack permalink
    November 15, 2018 9:23 pm

    And under May’s Brexit In Name Only plan, if it ever comes to pass, the EU and the ECJ will remain the ultimate arbiter of our affairs for a long, long time to come, particularly in environmental and energy matters. In the meantime, shares in candle factories will be going through the roof. Dickensian winters here we come!

    • ellyssen permalink
      November 16, 2018 3:21 am

      And fire extinguishers for candles knocked over.

  4. Graeme No.3 permalink
    November 15, 2018 9:24 pm

    What is needed is a radical re-think. Some suggestions; remove subsidies and buy the cheapest electricity. Demand that suppliers must bid for generation a week in advance in 6 hour blocks. Get out of the EU ASAP.

    • November 15, 2018 9:26 pm

      24 hours in advance, half hour blocks. How much can you supply me and what will you charge? If you fail to supply what you offered, you’ll get fined.

      That ought to thin the herd a bit.

    • November 16, 2018 12:49 pm

      Gee, that sounds like mark forces you are suggesting. Novel idea. Wonder if capitalism will ever catch on?

  5. November 15, 2018 9:31 pm

    use electricity in the most cost-effective way

    Sounds like code for something nobody wants. If it’s dark and you want to see where you’re going, is it ‘cost-effective’ to turn a light on?

    • Gerry, England permalink
      November 16, 2018 1:39 pm

      Smart metering.

  6. Chilli permalink
    November 15, 2018 9:53 pm

    Good to see our old friend Bryony Worthington on the board of Tempus Energy who bought the legal challenge – along with the ex-Chairman of National Grid and a Stern Review author.

    • Dave Ward permalink
      November 15, 2018 10:25 pm

      The same Bryony Worthington who was one of the main authors of the Climate Change Act 2008, responsible for putting us in this absurd situation….

  7. JimW permalink
    November 15, 2018 10:16 pm

    When faced with such situations ( and they do, a lot) , the French just fudge the issue. They would change something very minor in the payments and call them something like ‘green social solidarity payments’, they then sail through the ECJ. Not kidding, I have seen this many times over the years. The UK takes these judgements too seriously and overreacts.

    • November 15, 2018 10:43 pm

      Quite right JimW. The French just swat these annoying inconveniences. In any case how will the EU enforce this? Come on Westminster show a bit of manipulative intelligence. We are not playing cricket here.
      All a good reason to get out from under the EU dictats. “Vive les Brexiters”

    • manicbeancounter permalink
      November 15, 2018 10:43 pm

      I worked for a French multinational for 15 years. I wouldn’t say the French fudge issues. Their first reaction is to give a gallic shrug and ignore it. Then they try to circumvent, or negotiate after the order has been given. The British act not just to the letter of the rules, but to the spirit. In this honourable pursuit we British are very un-European.

      • martinbrumby permalink
        November 15, 2018 11:48 pm

        It is even worse. Most frequently our Beloved Leaders put much effort into gold plating EU directives and ECJ judgements.

      • Ben Vorlich permalink
        November 16, 2018 5:28 pm

        Exactly right, most Europeans do something similar to the French. Because the British never had a revolution which got rid of the ruling class and their administrators we are still overseen by a civil service of jobsworths and are prepared to let them do it as long we have someone to blame, what will replace the EU in our grumbling.

    • Derek Buxton permalink
      November 16, 2018 8:51 am

      The whole continent of Europe are on the same game, we are the only ones who recklessly stick by the rules or get fined. Some injustice there, especially when Merkel is having coal, lignight, power stations. Maybe she did not get the e-mail. It also strikes me that it is a strange coincidence that May has just signed our Country away again!

      • keith permalink
        November 16, 2018 9:52 am

        Well I think it is all rather fun bearing in mind Clarke and Perry are rampant remainers. Hoist by their own petard I say, serves them bloody well right.

    • November 16, 2018 12:54 pm

      I am reminded of a line from “My Fair Lady” sung by Professor Henry Higgins: “The French don’t care what they do, actually, as long as they pronounce it properly.”

  8. November 15, 2018 10:53 pm

    A further comment: Just change the rules and require intermittent energy suppliers to put in place and pay for back up facilities in the event of non delivery. That would get the chickens squawking.

    • It doesn't add up... permalink
      November 16, 2018 1:11 am

      …which is of course what Dieter Helm recommended in his review that the government have ignored..

  9. It doesn't add up... permalink
    November 16, 2018 1:28 am

    I think we can expect the ECJ and Brussels to abuse their power to our detriment with new laws and judgements until we are properly free from their clutches. There is no protection against this in the 585 pages.

  10. ellyssen permalink
    November 16, 2018 3:24 am

    Reminiscent of putting in 50p to a coin operated power breaker box.

  11. Judy Ryan permalink
    November 16, 2018 5:46 am

    Dear Paul Homewood,

    I read all your work, since the Charlie Hebdo false flag issue. I try to tweet or facebook your work from your website, but the trolls and the oligarchs band together and make it difficult.

    We, who can still think independently, are watching with interest and sympathy from Australia. We realise the EU and UN want to dominate us all. Or maybe for the people they will try to make it extermination by energy deprivation, so as to downsize the world to a sustainable size herd.

    We have plenty of good beautiful clean black coal and we can ship it to Britain on fossil fuel driven ships.

    There is too much to say in just one email. If you agree I can bcc you into the public emails I send that are related to our common interests.

    Behind the scenes there is a lot going on. Many of us are pressuring the current government to leave the Paris accord, as Trump evidently has done.

    Cheers Judy Ryan WWWeb of Independent Scientists Email judyryan@grapevine.com.au bit.ly/tgm-j

    Affiliated With

    Charles Camenzuli CATCAM Group Sydney

    Citizens Electoral Council Australia

    Dr David Evans Perth

    Principia Scientific International John O’Sullivan Britain

    The Carbon Sense Coalition Qld

    The Climate Realists of Five Dock Sydney

    The Climate Sceptics NSW

    The Galileo Movement Qld

    The Sensible Environmentalist Dr Patrick Moore Canada,US,Mexico

    Members World Council for Nature

    As truly independent scientists we will always debate the Science. However, we are united in our recognition and rejection of the politically driven post-normal science (such as climate alarmism)

    PS On another matter, Brexit, we are watching as your ‘Remainer’ PM is apparently making hash of leaving the EU. I remember there was another female who really wanted to exit the EU. She was running against Teresa May just after the referendum, but she pulled out. Is there a story behind that?

    >

    • Simon from Ashby permalink
      November 16, 2018 9:06 am

      Judy, Andrea Leadsom was the woman running against Theresa may. Leadsom gave an interview with the Times newspaper in which she was asked if having children affected her view on things (paraphrased). Leadson replied that it did. The Times reported that Leadsom had said she would would make a better PM than May because is childless, which is not what was said. Leadsom was so shocked she withdrew from the contest.

      The interview and subsequent reporting is widely believed in the UK to have been set up by May’s people.

      • dave permalink
        November 16, 2018 11:54 am

        Leadsom, unfortunately, is not very bright. She should have known there was a trap, because May had just played the “I am childless by God’s will, sniff sniff, one carries on…” card.

        Trump, of course, when his foot lands in a trap simply tears it back out and roars his defiance. And he has shown that you can face down the MSM.

        Shirley Williams had an amusing anecdote about Mrs Thatcher. Williams was in a side room when Thatcher rushed in, picked up a telephone, and took a call. After a few minutes of an obviously rather irritated conversation, she put the phone down, looked at Williams, and said simply, “Bloody Children!”

        s

      • November 16, 2018 12:59 pm

        Dave–you nailed it with Trump. The media simply cannot maneuver him. First of all, he is generally 2 miles ahead of them; secondly, he knows who they are; and, thirdly, he does not care. This is a man comfortable in his own skin. We are pleased. Well, maybe not the Democrats or “never-Trumpers”, but they are never pleased anyway. Who cares?

      • Simon from Ashby permalink
        November 16, 2018 2:26 pm

        Dave, agree with you completely. It also showed that Leadsom is spineless and not fit for high office, as she is showing again by not resigning in the face of the Brexit agreement.

        May is not fit because of a toxic combination of weakness, mendacity and bovine stubbornness.

  12. Hugh Sharman permalink
    November 16, 2018 7:16 am

    Triumphal press release https://blog.tempusenergy.com/blog/2018/11/15/tempus-landmark-ejc-court-ruling-press-release

    The rascals include ex-National Grid boss Steve Holliday https://www.tempusenergy.com/team

  13. November 16, 2018 7:45 am

    Emily Godsen has been busy tweeting her incredulity. I tried explaining the causal links …

  14. Rowland P permalink
    November 16, 2018 9:20 am

    One of the policies of UKIP is to repeal the Climate change Act…….

  15. November 16, 2018 10:32 am

    It is going to take Xmas day blackouts to change Public and Gov. opinion. When the turkey goes uncooked and the Bond film unwatched, then the Green Emperor will have his clothing discussed.
    Sad, but we appear to need real hardship to get through to people these days, especially if the Bond movie is GoldenEye with Pierce Brosnan.

    RS

    • It doesn't add up... permalink
      November 16, 2018 11:20 am

      Christmas Day tends to have rather low levels of electricity demand because so much of the economy is shut down. A cold spell in mid January is a rather different matter.

  16. AndyG55 permalink
    November 16, 2018 11:08 am

    That must mean that subsidies to wind and solar are also illegal, right ?????

    • A C Osborn permalink
      November 16, 2018 12:13 pm

      Of course not, the ECJ authorised those.

  17. Athelstan permalink
    November 16, 2018 11:19 am

    Piers Corbyn is forecasting a significant ‘Polar air event’ coming right down our street, what a laugh it’s going to be maybe if the Pro EU loving Beis had to cut ‘subsidies’ to our only effective defence (fossil fuel generation) against a prolonged period of deep cold.

    All supplies of piano wire run out?

    • November 16, 2018 10:07 pm

      Again with the piano wire? Everywhere I look it is piano wire this, piano wire that, blah blah blah.

  18. J Burns permalink
    November 16, 2018 11:47 am

    “an energy system that reduces bills by incentivising and empowering customers to use electricity in the most cost-effective way”

    Nobody should let them get away with this kind of doublespeak. What they are talking about is electricity rationing, plain and simple.

  19. Gerry, England permalink
    November 16, 2018 1:49 pm

    What none of the legacy media have picked up with their limited intellect are the non-regression clauses in Part Two Article 2. This ties the UK up to all the global warming bullshit AFTER the transition period ends. I have always said that any future Free Trade Agreement with the EU would include this. That is why the only way to leave the EU sensibly is to join Efta and remain in the EEA. Most of the environmental crap is not included in the Common Regulatory Area and the UK would have a right of veto. Leaving the Single Energy Market would help as well but we need the interconnectors for gas and electricity too much at the moment thanks to the government moronic energy policy.

  20. dennisambler permalink
    November 16, 2018 4:47 pm

    Ed Davey is now on the advisory board at the LSE and Imperial Grantham Centres.

  21. Ben Vorlich permalink
    November 16, 2018 5:48 pm

    As of now 16 Nov 17:35 the demand is42.6 GW wind is supplying 3.47GW about 8% solar is obviously zero. Interconnectors nuclear and coal are going almost full out and it’s a fairly mild early evening in November. Doesn’t bode well for January if this judgement is still in place. Rolling powercuts and brownouts should focus the the mind.
    I don’t think being in our out of the EU will make any difference to this kind of judgement, it would have been the UK Supreme Court and they would make the same call.

    • November 16, 2018 10:03 pm

      It would not be illogical to obey the ECJ’s decision and wait for power cuts, if one wanted to make a very simple and clear point.

  22. paul weldon permalink
    November 17, 2018 10:07 am

    I found this article interesting:

    http://www.pv-magazine.com/2018/11/16/european-court-of-justice-challenges-basis-of-uk-capacity-market/

    Especially the last comment:

    This article was amended on 16/11/18 to reflect the fact the ECJ has annulled the European Commission’s decision to find no fault with the proposed establishment of the U.K. capacity market. The ECJ has not found the capacity market amounts to a back-door incentive for generators, but has launched a formal investigation into the mechanism.

    I may have got this totally wrong, but it would appear that the ECJ found the EU to be at fault, not the UK, and that the UK capacity market has not been found guilty of subsidizing fossil fuels through the establishment as claimed. It now requires an investigation by the EU into this matter, as should have been carried out when permission was requested from the EU.

  23. John Williams permalink
    November 17, 2018 5:22 pm

    Paul,
    Sorry OT. Have you read this news release? https://www.foxnews.com/science/error-in-major-climate-study-revealed-warming-not-higher-than-expected

    I posted at Judith Curry’s blog concerning quotes of Nic and her about what is responsible for ocean heat uptake. According to the article, Nic claims the oceans are warming wholly mainly due to human greenhouse gas emission.

    This argument IMO has never been supported outside the assumptions made in climate models that CO2 mitigates cloud cover. Also, I’ve yet to see a mathematical solution to how LWIR (reflected IR) can possibly warm the oceans to any measurable degree.

    The blog post is here:
    https://judithcurry.com/2018/11/17/resplandy-et-al-part-3-findings-regarding-statistical-issues-and-the-authors-planned-correction/#comment-883892

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