All too often national capacity mechanisms are used to prop up creaky old fossil fuel plants and to protect the interests of incumbent utilities – at significant cost to consumers and with little benefit for security of supply.
The best value approach to energy security is to improve energy efficiency, promote demand-side flexibility and develop greater interconnections – rather than just giving money to existing generators. Poorly-designed capacity mechanisms can actually undermine these options rather than promoting them. The Commission’s competition inquiry should look not only at whether particular companies are being unfairly favoured, but also at whether capacity mechanisms are discriminating against demand side options and interconnections.
However, it is unfortunate that Vestager has decided not to include the UK capacity mechanism in the inquiry at this stage.[1] The Commission’s decision to grant state aid clearance to the UK scheme last year is already being challenged in the courts as a result of discrimination against demand-side market participants.[2] The first capacity auction in 2014 means the UK will spend nearly £1 billion of consumer money primarily on supporting existing generation. This includes giving support payments to keep 9.2 GW of old coal plant on the system, which could put UK climate targets at risk.[3]
Further information
[1] The inquiry will “initially request information on a representative sample of Member States that have capacity mechanisms in place or are considering them, namely: Belgium, Croatia, Denmark, France, Germany, Ireland, Italy, Poland, Portugal, Spain and Sweden”.
[2] The case is being pursued by Tempus Energy, a demand side management company. See http://www.carbonbrief.org/blog/2014/12/brave-legal-challenge-launched-against-uk-capacity-market/ for background.
[3] See E3G briefing paper “Keeping coal alive and kicking: Hidden subsidies and preferential treatment in the UK Capacity Market”, July 2014 http://e3g.org/docs/E3G_Briefing_-_Keeping_coal_alive_and_kicking_-_hidden_subsidies_and_preferential_treatment_in_the_UK_capacity_market.pdf
