Court's decision makes a case for excluding dirty energy from capacity mechanisms subsidies

15 November 2018
by eub2 -- last modified 15 November 2018

The General Court of the European Union has decided today to annul the European Commission's decision not to raise objections to the aid scheme establishing a 'capacity market' in the United Kingdom. The ruling puts into question many capacity mechanisms in place across Europe, including the Polish capacity market which is based on the UK model.

The ruling has resulted in the suspension of the UK's 'capacity market', thus preventing the government from holding future auctions or making payments under existing agreements. It also calls into question whether payments which have already been made will have to be paid back. What's more, the ruling casts doubt over many capacity mechanisms in place across Europe including the Polish capacity market. This comes on the very same day as the first capacity market auction in Poland, which is expected to approve billions of euros in subsidies to Polish coal plants.

Capacity mechanisms, which are supposedly intended to ensure supply in case extra power is needed, have become the largest single source of subsidies to power plants, adding almost €58 billion to energy bills across the European Union. Today's ruling is the outcome of a challenge made by UK company Tempus Energy which argued that the design of the UK capacity market favours fossil fuel generation at the expense of alternative technologies. This is particularly important as earlier this year the European Commission approved capacity mechanisms in a number of countries, including Poland, which used the UK model to design their scheme.

The ruling now raises uncertainty around the future of these schemes. It is estimated that by 2030 the capacity market would cost Polish taxpayers up to €14 billion. The vast majority of this sum is expected to be used for life-time extensions of existing coal plants, but also for new coal power plants backed by the government through up to 15 year-long contracts.

Joanna Flisowska, Coal Policy Coordinator at Climate Action Network (CAN) Europe said:

"Today's Court decision regarding the UK capacity market confirms that in practice capacity mechanisms are used to hand out money to fossil fuels rather than for security of supply. This casts doubt on other capacity markets, especially the Polish one."

The Court's decision is timely in the context of the ongoing negotiations between the European Parliament, the Council and the Commission on the set up of capacity mechanisms for the years to come. Negotiations are currently deadlocked as the Council is standing by its general approach adopted last year, which would prolong the use of capacity mechanisms to subsidise the most polluting plants, including coal, up to 2035.

Flisowska added: "Now the European Council has no more excuses. At the upcoming trilogue negotiations the EU must correct its faulty rules and exclude immediately the most polluting plants, and coal in particular, from capacity mechanisms."

Climate Action Network (CAN) Europe is Europe's leading NGO coalition fighting dangerous climate change. With over 150 member organisations from 35 European countries, representing over 1,700 NGOs and more than 40 million citizens, CAN Europe promotes sustainable climate, energy and development policies throughout Europe.

Climate Action Network (CAN) Europe