UK to face legal challenge over ‘unlawful’ fossil fuel subsidy

The UK Government is to be challenged in an EU Court by an energy supplier for providing “unlawful subsidy” through one of its schemes and violating state aid rules. Under […]

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By Priyanka Shrestha

The UK Government is to be challenged in an EU Court by an energy supplier for providing “unlawful subsidy” through one of its schemes and violating state aid rules.

Under the UK’s Capacity Market, operators will be able to bid for contracts to offer back up power when demand is high, with the first auction due to start this month.

Tempus Energy claims the scheme “prioritises fossil fuel generation over cheaper and more reliable demand-side options”.

Generators will be offered financial incentives for keeping capacity available over the course of contracts, which could run for 15 years. Demand response companies that are willing to curb their energy use are however offered only one-year contracts, it adds.

The energy firm is accusing the Government of planning to “lock-in consumers to £2.5 billion annual power charges to 2030 despite availability of lower cost alternatives” for keeping the lights on.

Sara Bell, CEO of Tempus Energy said: “The Capacity Market was originally set up to keep the lights on at the lowest possible cost. But an engrained, institutional bias in favour of building new assets to boost supply means that cost effective ‘no build’ technologies for managing demand have been ignored.

“This will push up electricity bills needlessly and commit consumers to paying for capacity that we would not need if we invested in building demand-flexibility, for those who want to use it.”

Tempus Energy claims demand side management enables the sector to move to a “customer-centric model” where they have the choice to buy the “cheapest possible price point for every unit they use”.

DECC however said the European Commission has already concluded the Capacity Market is within EU state aid rules.

A spokesperson added: “This challenge will have no impact on the running of the capacity auction in December. We are fully confident in this auction.”