Expert view what does the general court ruling mean for great britain’s capacity market clientearth electricity physics formulas


This case was brought in December 2014 by Tempus Energy, a UK-based ‘demand side response’ (DSR) operator. The action was based on Tempus’s view that the GB Capacity Market was designed to favour fossil fuels (gas, coal and diesel generators), at the expense of cleaner technologies. They argued that this grants unnecessary extra profits to polluting energy companies, and unnecessarily increases consumer bills.

The General Court found that the Commission had breached legal requirements by approving the huge (up to £23.4 billion from 2018-2024) State aid scheme after only one month of assessment in July 2014 – rather than launching the in-depth investigation required for complex schemes which may not comply with State aid law. For this reason, it has annulled the Commission’s decision, and ordered the Commission to pay Tempus’s costs.

This means that the Commission will now have to reassess the Capacity Market’s compliance with State aid law. wd gaster battle The UK Government might want to make some changes to the scheme before the Commission starts its analysis. The Capacity Market will be suspended until the Commission issues a fresh approval decision. electricity reading comprehension Background – what is the Capacity Market?

The stated aim of the Capacity Market is to ensure that in periods of peak electricity demand, enough electricity can be supplied to meet Great Britain’s needs. It pursues this aim by providing subsidies to operators who successfully bid for ‘capacity agreements’ in auctions. These auctions are organised either four years ahead (T-4 auctions) or one year ahead (T-1 auctions) of the year in which the operator must supply the capacity.

The capacity agreements are of varying length – a central point for the Court’s decision. Existing electricity generators can secure agreements of up to 3 years, if they are refurbishing; new-build generators can get agreements of up to 15 years; and all other capacity providers can receive agreements of only up to one year. Those ‘other’ providers include both existing generators that will not be refurbished, but also innovative clean energy technologies such as ‘demand side response’ (DSR).

DSR operates by allowing consumers to reduce their electricity consumption (demand) in response to high electricity prices, saving consumers money as they shift their consumption to a time when power costs less. It can also do this at times of peak demand: in return for capacity payments, consumers shift their consumption to periods of lower overall demand, easing pressure on the grid. 7 gas laws This is the much cleaner alternative to getting electricity generators to increase supply at these times of peak demand.

Tempus claims that the Capacity Market discriminates against DSR by allowing it only to bid for one-year contracts, whereas generators – mainly fossil fuel operators – can bid for contracts lasting for three or even 15 years. This is despite the fact that setting up new DSR operations also requires upfront investment, and justifies support over a number of years – the exact rationale the Government puts forward for allowing generators to bid for these longer contracts. Tempus also claims that other conditions that bidders have to meet discriminate against DSR operators. The General Court’s judgment – more details

The Commission and the UK had argued that the lengthy pre-notification, together with the public consultations run by the UK Government on the scheme at a national level, helped justify the short Phase 1 approval. The Court gave this short shrift, emphasising that the ‘pre-notification’ period has no formal role in the assessment process, which must be done at Phase 1 / Phase 2, and that the Commission has an obligation to gather all the information from interested parties that is relevant to assessing compatibility of the aid with EU law. grade 9 electricity test It cannot simply rely on consultations carried out by Member States at the national level.

A final, very important point for third parties who might want to challenge a proposed State aid: during Phase 1, three types of electricity operator submitted comments to the Commission detailing their thoughts on whether the aid was compatible with the internal market. This, the Court emphasised, indicated that there were in fact doubts as to compatibility. The operators did this despite the fact that there was no formal procedure for them to submit these comments. The lesson: don’t be afraid to contact the Commission – the more information it has, the better informed it will be, and the stronger your position in the State aid process.

It went on to conclude that “the Commission could not be satisfied merely by the openness of the measure and conclude, consequently, that it was technology neutral, without examining in greater detail the reality and effectiveness of the appreciation of [DSR] in the capacity market.” DG COMP had not assessed the potential of DSR for the purposes of the Capacity Market. electricity flows through It simply accepted the UK’s arguments on this point, even where there was contradictory evidence available.

The Capacity Market treats DSR and generators very differently – in particular, DSR can only receive capacity agreements for one year, whereas generators can get agreements for three years (existing generators) or 15 years (new generators). This is despite the fact that it claims to be technology neutral. gas equations chemistry This could only be justified if the Commission did detailed analysis of whether it was appropriate to treat generators and DSR differently in this manner.

The Court concludes that the Commission did no such analysis – it merely accepted the UK’s statement that DSR operators do not have the same capital needs as operators of new generation plants. Indeed, the UK Demand Response Association (UKDRA) had informed the Commission that the opposite was the case, and asked the UK Government to do some modelling that would demonstrate this (this did not happen).

The obligation was on the Commission to go and research this point – perhaps by asking organisations like Tempus and UKDRA to provide evidence. The Commission cannot criticise third parties for failing to provide this information spontaneously, which it did in this case. In fact, UKDRA had actually offered to provide further information on this – the Commission never took up this offer.

The Court found that the Commission may have been correct that the design of the T-1 auction may genuinely encourage development of DSR. However, the limited amount of capacity reserved for T-1 (as opposed to the T-4) auctions, and the lack of any legal guarantee supporting the UK’s political statement that it would procure at least 50% of capacity reserved for the T-1 auction through that auction, meant that the Commission should have had serious doubts regarding the size of the ‘incentive effect’ of the Capacity Market. electricity distribution vs transmission Establishing the incentive effect is a key part of finding the measure compatible with EU law.

The Court was very clear that the Commission should open a Phase 2 investigation. This means that the Commission might conclude Phase 1 quickly, and in less than two months, so that it can open Phase 2. The Phase 2 procedure can take up to 18 months; it can also take a lot less time. There will be considerable pressure and efforts from the UK Government to conclude this investigation as quickly as possible – it seems quite likely it could be concluded by the middle of 2019, and seems very unlikely to last until 2020. What can I do?

Market players and technical experts will be able to participate in this Phase 2 procedure. This is an excellent opportunity to demonstrate how capacity mechanisms generally have not achieved their goals, and the GB Capacity Market in particular, and why – if they are to exist at all – they should be redesigned to promote clean energy solutions rather than fossil fuels.