The European Court of Justice has annulled the decision of the European Commission to grant state aid authorisation for the UK's capacity market scheme.
The ECJ found that the Commission had granted approval in 2014 after just a month long preliminary examination and had failed to take full account of objections raised.
The Commission must now undertake a full investigation of the scheme before granting state aid approval. It may emerge that changes to the scheme are required.
The ruling came from a challenge brought by clean technology company Tempus Energy. Tempus claimed that the scheme unfairly favoured fossil fuel generators over Demand-Side-Response and battery storage projects.
The ECJ ruled that the European Commission had been wrong to authorise the scheme without properly investigating technological neutrality.
The judgment suspends state aid approval for the scheme. It therefore imposes a 'standstill period' in which the granting of aid through the scheme will not be lawful.
During this time the government cannot hold capacity auctions, make any capacity payments or take any other action that could be perceived as granting state aid.
The Department for Business, Energy & Industrial Strategy has released a statement advising that it is already working closely with the Commission and is doing everything to re-obtain state aid approval as soon as possible.
At this stage, however, it is unclear when the standstill period will end. In the meantime, activities that do not involve granting aid - such as completing the Prequalification process for 2019, will continue.
National Grid has issued advice for affected capacity agreement holders and capacity market applicants. Further guidance from BEIS and National Grid on the implications is expected.
Should you require any assistance in relation to this or related issues, please get in touch.
Contributor: Claire Welch
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