The European Commission should have opened a formal investigation procedure to better assess the compatibility of the UK electricity capacity market regime with EU state aid rules, the EU Court found in a judgement delivered on Thursday 15 November annulling the Commission's July 2014 decision authorising the regime (Case T-793/14).
Through this aid scheme based on the UK Energy Act 2013, the United Kingdom pays capacity providers who undertake to produce electricity or to reduce or defer their consumption during periods of stress on the grid.
Objective: To encourage capacity providers, both producers (power plants, including those using fossil fuels) and demand management operators, to take into account the difficulties that may arise during peak demand periods.
Interested in the capacity market, the Tempus group considers that the Commission could not decide, after only a preliminary examination and in the light of the information available at the time of the decision, that the proposed aid scheme did not raise doubts as to its compatibility with the internal market.
According to them, the UK scheme gives a disproportionate preference to production over demand management.
In its judgement, the General Court of the European Union ruled in favour of Tempus. In its view, the Commission was not in a situation where it could simply rely on the information submitted by the United Kingdom without carrying out its own assessment in order to seek, in particular from other interested parties, the information relevant for the purposes of its assessment.
According to the European judge, several factors should have encouraged the European institution to open a formal investigation procedure: - this was the first time that the Commission had to examine a capacity market; - the notified UK measure was complex and significant: public aid ranges from 900 million GBP to 2,6 billion GBP per year over ten years; - during the pre-notification phase (notification on 23 June 2014), the Commission sent questions to London (incentive effect and proportionality of the measure, potential discrimination between capacity providers) indicating its difficulty in assessing the case in its entirety and which are at the heart of the assessment required by the Energy State Aid Guidelines as from July 2014.
Finally, the Court finds that the Commission did not correctly assess the role of demand management in the relevant capacity market. However, it was aware of difficulties raised by a group of technical experts regarding the risk that the UK scheme might not take sufficient account of the potential of demand management. (Original version in French by Mathieu Bion)