Capacity Market suspension following Tempus State aid judgment

Capacity Market suspension following Tempus State aid judgment

Matthew Brown, energy lawyer at LexisNexis, examines the suspension of the Capacity Market following the Tempus State aid judgment of 15 November 2018.

First published in LexisPSL. Click here for a free trial. 

What has happened?

On 15 November 2018 the General Court of the Court of Justice of the European Union found in favour of Tempus Energy Ltd and Tempus Energy Technology Ltd (Tempus), who had challenged the validity of the European Commission's 2014 State aid clearance for the Great Britain (GB) Capacity Market (Capacity Market). As a result, the Capacity Market's State aid clearance has been annulled and its operation has been suspended. The immediate term consequences for providers or potential providers of capacity under the Capacity Market are explained below.

Brief background

Tempus (who are a provider of technologies for what is known as 'demand side response' (DSR) - in essence allowing large energy users to control the timing of their energy usage) believe that, while support under the Capacity Market can be won by DSR, the duration of support available under the rules of the Capacity Market is prejudicial to DSR compared to new/refurbishing electricity generation projects. Tempus was successful in overturning the Capacity Market's State aid clearance through arguing that, in granting the Capacity Market State aid clearance, the Commission should have found that sufficient doubt was raised as to compatibility of the Capacity Market with the internal market to invoke the 'formal investigation procedure' provided for pursuant to Article 108(2) of the Treaty on the Functioning of the European Union (TFEU).

This decision comes after the Capacity Market mechanism has been operating for a number of years, and therefore where:

  • a large number of projects are receiving capacity payments pursuant to 'capacity agreements' (note, despite the term, a 'capacity agreement' refers to the rights and obligations accruing to capacity providers under the legislation which underpins the Capacity Market (and the 'Capacity Market Rules' made under this legislation

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