Tempus Energy has launched a fresh attack over the government’s handling of the Capacity Market (CM), accusing it of “pretending” that the European Court of Justice’s judgement on the matter is less serious than it is.
In an open letter addressed to the government from Tempus chief executive and co-founder Sara Bell, the government’s reaction to the judgement is heavily scrutinised. It urges the government to “start being honest with investors and parliament” over the judgement’s impact, before narrowing in on the mechanism’s perceived failures.
In November last year the CM was hit by a surprise suspension, triggered by a European Court of Justice decision that ruled the European Commission had failed to properly investigate the mechanism’s compliance with state aid guidelines when it was ratified.
The judgement essentially annulled the CM’s state aid clearance, forcing the government to suspend the scheme’s operation. As a result, all planned auctions and future payments have been stopped, and the government could still be forced to recover previous payments as well.
However the government has remained steadfast in its opinion that the court’s decision was “decided on procedural grounds” rather than the mechanism’s nature or methodology, prompting Bell to accuse energy minister Claire Perry of being “disingenuous”.
And Bell has doubled down on that criticism in her open letter, arguing that the court upheld her company’s challenge of the state aid approval because “substantive” features of the policy’s design gave rise to serious doubts over its compliance with state aid rules.
The letter goes on to argue that the CM artificially inflates the schemes cost through its methodology, which also makes it “practically impossible” for consumers to escape costs by not drawing from the system during demand spikes unless they have behind-the-meter generators, such as rooftop solar, at their disposal.
Tempus argue that this makes the scheme more expensive for everyone and prevents innovative demand-shifting technologies such as demand-side response from contributing.
But some of the harshest criticism is reserved for the European Commission, which has yet to launch its investigation into the CM and its state aid compliance, although this is due to commence early this year.
“Let us be very clear – the Commission has absolutely no scope to legitimately provide any real, reliable assurance as to the outcome of the investigation. It must follow the proper process as directed by the Court, or it will face further litigation,” Bell writes.
The letter concludes with a series of recommendations that Tempus argue serves as a list of minimum requirements for the CM, including equal contracts lengths of no longer than five years for all resources; entry criteria tweaked to allow new entrant participation, with a mooted minimum participation size of 100kW; guaranteed minimum reserve for year-ahead T-1 auctions of 25%; and a customer charging methodology that promotes system efficiency, providing a clear price signal to incentivise consumer flexibility.
“The Capacity Market should be positioned to provide a genuine launch pad for the technologies that will replace the aging fossil fuel plant of today for the benefit of electricity customers. It should be a space to develop the financing structures and business models that need to evolve in order to support this transition. Security of supply ‘at any cost’ is no security at all. The UK can do better than this,” the letter writes.