Europe ruling sparks power supply fears

FEARS have been raised for Britain’s energy supply after European judges struck down a £1billion scheme to keep the lights on.

The so-called ‘capacity market’ provides a pool of cash to be paid to power companies to make sure there is enough electricity to meet demand.

Firms are effectively paid to keep power stations open and ready to cover any shortfalls on the grid.

But yesterday the scheme was deemed illegal state aid – throwing it into doubt and sending shares in UK energy firms plunging.

Traders wiped a combined £1billion off the value of British and Scottish Gas owner Centrica and Perthbased SSE, as shares in both companies fell.

Lawrence Slade, chief executive of industry body Energy UK, said: ‘The capacity market has proven it can successfully deliver security of supply at the lowest cost to consumers. Given the serious financial implications for capacity providers, as well as the need for investor certainty and security of supply, this issue needs to be resolved.’

A Government spokesman insisted the European ruling would ‘not impact [on] security of supply this winter’.

Under the capacity market scheme, billions of pounds are paid to coal, gas and nuclear plants to be ready to provide power in the winter, with costs added to consumer bills. But Tempus Energy, which provides software to manage energy demand on the grid, brought a legal case against the system, claiming it discriminated against firms like it and favoured fossil fuels.

Tempus challenged the European Commission’s approval of the scheme under state aid rules. The European Court of Justice yesterday ruled against this approval, in a move which has led to the market’s suspension.

Tempus chief executive Sara Bell said: ‘This ruling should force the UK Government to design an energy system that reduces bills by incentivising and empowering customers to use electricity in the most cost-effective way.’

Business Secretary Greg Clark said: ‘National Grid is confident it will not cause any risk to supply.’

A UK Government spokesman said: ‘The ruling does not change the Government’s commitment to delivering electricity supplies at least cost, or our belief capacity market auctions are the most appropriate way to do this.’