Tempus Energy slams government for refusal to reform capacity market

The boss of Tempus Energy has slammed the government for refusing to reform the capacity market, while urging ministers to “start being honest” with investors and parliament.

The scheme was brought to standstill in November last year after an EU court overturned a 2014 decision by the European Commission to approve the mechanism under state aid rules.

Shortly afterwards, energy and clean growth minister Claire Perry told parliament the judgement was made on “procedural grounds” and did not constitute “a challenge to the nature of the UK capacity market mechanism itself”.

In an open letter to the Department for Business, Energy and Industrial Strategy (BEIS), Tempus Energy chief executive Sara Bell described Perry’s statement as “misleading”.

She said judges upheld the Tempus’s legal challenge against the capacity market because they had “serious doubts” over the compatibility of several “substantive features” of the mechanism with state aid guidelines.

“We urge the government to stop pretending that the judgment does not impact upon the policy design and to start being honest with investors and parliament,” wrote Bell. “Only then can we get the policy right and rebuild market confidence.”

She criticised the charging methodology for the capacity market, saying it “artificially inflates the cost” of the scheme by making it “practically impossible” for consumers to save money by avoiding using the power grid during spikes in demand.

“The court agreed with Tempus that the commission did not properly assess the methodology against the relevant legal guidelines, which state that an aid measure is proportionate only if its amount is limited to the minimum needed to reach the objective aimed for,” Bell added.

“Continuing to charge customers under that methodology in the face of the judgment is reckless and unjustifiable.”

Last month, the government published a consultation detailing its plans to hold a T-1 auction over the summer to replace the one previously scheduled for early 2019.

According to the document, BEIS expects the European Commission to provide reassurance the capacity market will be reapproved following its formal investigation into the scheme in a minded-to decision in early 2019.

But Bell said any such reassurance would be “worthless and risky”.

She continued: “The commission has not yet launched the investigation, let alone invited or considered formal evidence.

“Let us be very clear – the commission has absolutely no scope to legitimately provide any real, reliable assurance as to the outcome of the investigation. It must follow the proper process as directed by the court, or it will face further litigation.”

To ensure the capacity market is compatible with state aid rules, Bell called for the following changes:

• Equal contract lengths for all assets, lasting no longer than five years.
• Reforms to entry criteria to facilitate participation by new entrants, including a 100kW minimum capacity threshold.
• Reforms to the charging methodology to promote system efficiency and minimise costs.
• A guaranteed minimum reserve for T-1 auctions of 25 per cent.

She added: “We urge the government to be proactive in taking on board the court’s findings, gathering the necessary substantive evidence and redesigning the capacity market so that it is workable, bankable and future-proof.”

BEIS has yet to respond to a request for comment.