Tempus Energy: A five year old can see capacity market is anticompetitive, the billion won’t be paid

Sara Bell: A five-year-old can see capacity market is anticompetitive.
Sara Bell: A five-year-old can see capacity market is anticompetitive.

Ahead of a verbal hearing, Tempus Energy boss Sara Bell is “very confident” that the legal challenge filed with the European Court of Justice will result in the UK capacity market being found to be anticompetitive. Generators with contracts under the scheme will not be paid, she claims.

Bell filed the complaint last December on the basis that the contracts within the capacity market mechanism favoured generation over demand side response technologies. The former can bid for up to 15 year contracts, the latter are restricted to one year contracts. That means it should never have cleared EU state aid rules, claims Bell.

“The capacity market contravenes competition law and state aid approval is premised on competition law,” Bell told The Energyst. “I can explain why the capacity market is anticompetitive to a five year old. If you ask resources to bid in on the same terms when you give one of them a one year contract and one of them a 15 year contract, a five-year-old understands that one times one is a smaller number than one times fifteen. This is not rocket science it is an anticompetitive auction.”

Ahead of an anticipated verbal hearing in autumn, Bell said she was “very confident that we will win”, although she accepted that a judgement would not likely be made until 2016.

“We have challenged on a procedural basis where the requirements to win the case are lower. So we have taken a very strategic view on this case. I am very confident of winning it. The commission didn’t do a very thorough job.”

The capacity market is one of a number of government policies originally intended to keep the lights on and do so affordably while decarbonising the economy.

It was designed to incentivise investment in new generating plant and reward companies that could provide guaranteed capacity and demand response services. The policy was also implemented to help make the economic case for plant operating around intermittent renewable generation.

The government ran the first capacity auction in December, awarding around £1billion in contracts, largely to existing gas and coal power stations.

While the department of energy and climate change remains confident in the European Commission’s approval of the capacity market, Bell says the contracts awarded will not be paid.

“Will I win? There is absolutely no doubt. In 2018, once state aid approval goes, all of those contracts are null and void. That billion will not be paid out and nor should it,” says Bell. “It is a complete waste of money. We are paying almost a billion pounds to generation units that would have been in the market and would have been generating anyway.”

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