The UK's Capacity Market has been initially suspended after the European Court of Justice annulled the European Commission’s decision not to object to the scheme.
However the Department for Business, Energy and Industrial Strategy has said it intends to work closely with the European Commission to reinstate the scheme as soon as possible.
The ruling essentially prevents the government from holding future auctions and making payments under existing agreements.
Clean energy technology provider Tempus Energy challenged the decision to grant the UK’s Capacity Market with state aid approval, claiming that its very design unfairly discriminated against clean energy projects, paving the way for the market to be “dominated” by coal, gas and diesel generators.
Tempus claimed that the scheme privileges generation technologies over demand side response in a “discriminatory and disproportionate manner”, adding that the European Commission could not have concluded that there were no doubts surrounding the scheme on the basis of a preliminary examination.
And today the General Court of the European Union ruled in Tempus’ favour, annulling the European Commission’s decision not to raise objections to the scheme.
The ruling said that the EC should have had doubts over certain aspects of the scheme and initiated a formal investigation to properly assess its compatibility with state aid rules.
The UK now has two months to appeal the ruling before the Court of Justice.
In a statement issued this morning, Tempus Energy chief Sara Bell said that the ruling meant that a “customer revolution is on the cards”.
“This ruling opens the door for cheaper energy – greater use of demand-side innovation would change the way we use electricity in practice, and place customers at the heart of the energy system for the first time.
"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,” she said.
A BEIS spokesperson said: “We are disappointed with this judgement, but it poses no issues for our security of supply. As a responsible government, we have prepared for all outcomes, and we will be working closely with the Commission so that the Capacity Market can be reinstated as soon as possible.”
This afternoon, an updated statement from BEIS confirmed that the ruling had imposed a "standstill period" on the Capacity Market, and that the department was working with National Grid to contact affected parties.
It further stated that the government was already working closely with the EC to aid an investigation into the Capacity Market and is seeking "timely" state aid approval.
"The ruling does not change the UK government’s commitment to delivering secure electricity supplies at least cost, or our belief that Capacity Market auctions are the most appropriate way to do this. The ruling will not impact security of supply this winter," the statement reads.