Brussels allows UK to subsidise fossil fuel generators

Green light clears way for payments of £990m to gas, coal and nuclear power firms.

The UK’s largest fossil fuel generators may be back in line for almost £1bn in backup power subsidies this winter after the European commission approved the UK’s flagship energy scheme, which was ruled illegal last year. A shock European court ruling brought the government’s “capacity market” to a standstill last November, triggering an in-depth investigation into whether the UK’s plan to pay power plants to stay open was compatible with EU state aid law. The commission’s green light is expected to clear the way for payments of around £990m to the owners of Britain’s gas, coal and nuclear power plants to guarantee they will keep the lights on this winter.

Andrea Leadsom, the business secretary, said she expected that the capacity market would also pay back £1bn owed to generators for last winter when the capacity market was suspended. Leadsom said the commission’s approval should enable the capacity market to resume its role as the UK’s principal tool for assuring the UK’s security of supply. The decision provided confidence that its design was fit for purpose, she said.

Under the scheme, energy companies bid years in advance for billpayer-funded subsidies to provide backup power at crunch times during winter. It was approved by the European commission in 2014 but called into question last year after the energy startup Tempus Energy successfully appealed to the European court of justice against the approval.

Tempus Energy said the policy put energy-saving schemes at a disadvantage by overlooking the potential to balance the energy system using measures that reduce energy demand in favour of ramping up energy supplies.

Sam Bright, an energy lawyer at ClientEarth, said: “The litigation brought by Tempus gave the UK government and the European commission breathing space to reconsider whether a scheme of this nature was really necessary. Sadly, rather than take this opportunity for a major rethink, which could have brought the British electricity market into the 21st century, the commission is allowing the government to keep pumping electricity consumers’ money into 20th-century infrastructure.”

The coal company Drax said it expected to receive £75m from the government for generating electricity in the current financial year. The German energy firm RWE, which runs a string of UK gas plants and the Aberthaw coal plant in Wales, expects to receive €100m for last year and €180m for the current financial year.

SSE is also expected to rake in strong returns from the capacity market for its gas power plants, and EDF Energy is in line for a windfall for its nuclear power fleet.

Roger Miesen, the chief executive of RWE Generation, said: “The capacity market has proven that it can successfully deliver security of supply at the lowest cost to consumers. The commission’s conclusion provides the necessary certainty to plant operators and is great news, because the capacity market is crucial for security of supply.”