Legal challenge for upcoming UK capacity market

New energy market entrant Tempus Energy is poised to mount a legal challenge against the UK government’s capacity market, arguing that the “unlawful subsidy” offered to power generators unfairly prioritises the use of fossil fuels above demand-side options.

Tempus, a supplier of both energy and demand-management solutions, will submit the challenge to the European General Court on Thursday afternoon, just twelve days before the first capacity market auction is due to secure just over 50GW of generation for delivery in winter 2018/19.

Tempus hopes to obtain a ruling by the European Court that the state aid approval for the auction scheme was unlawful, which will force the EU Commission to hold a formal inquiry and may result in the upcoming auction result being annulled retrospectively.

Tempus Energy recently received its license to supply energy and demand-side solutions to UK customers but chief executive Sara Bell has campaigned for eighteen months to have the scheme overturned.

“[A]n 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,” Bell said.

“It’s the equivalent of the US Government in 1876 turning a blind eye to the first transatlantic telephone call and instead diverting its investment into improving the Postal Service,” she added.

The government envisages the capacity market as a means of securing the UK’s winter energy supply margins which this year have fallen to their lowest level in four years. But Bell claims that the government’s approach will unnecessarily raise costs for the UK consumer by marginalising the growing demand-side management sector.

Participation in the capacity market is open to new technologies including demand side response. But the Demand Side Association (DSA) said in a statement that the government is failing to create the right environment for these new technologies to compete by limiting the length of the contract on offer to DSR providers.

“DSR faces restrictions which large power stations do not face, including the right to bid for contracts longer than one year. Additionally, the rules make it difficult for consumers to reduce their costs by altering their consumption patterns,” a statement from the DSA said.

The plans came under criticism from the UK’s energy and climate change select committee earlier this year with committee chair Tim Yeo warning that the capacity market favours the development of new generation over the use of demand-side response options which could save consumers up to £359 million per year.

UK think tank IPPR has also called on government to consider “major reform” of its energy policy, shifting its support from a centralised utilities-based model to one which backs ‘smart’, distributed electricity technologies.