London — The European Commission seeks clarity on whether demand side response (DSR) operators deserve longer contracts in the UK capacity market, competition commissioner Margrethe Vestager says in a letter published late Friday to UK Foreign Secretary Jeremy Hunt.
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In a November 15 judgment forcing the EC to re-examine the UK?s capacity market, the EU's General Court said the difference in contract lengths offered to DSR operators and conventional generators cast doubt on the mechanism?s compatibility with EU?s internal market competition rules.
?The Commission must therefore examine whether the absence of longer term capacity contracts for DSR operators reduces their chances to contribute to solving the UK capacity adequacy problem,? Vestager said.
This gets to the heart of DSR aggregator Tempus Energy?s legal challenges to UK and now Polish capacity markets.
Tempus argues that offering 15-year deals to new fossil-fried generation distorts competition, locks in pollution and sidelines new demand response, which can only bid for one-year contracts.
The UK government argues that new power stations need 15-year agreements due to high up-front capital costs. New DSR operators do not face the same costs, it says.
?According to the UK, the DSR sector has not provided information in response to previous requests and past studies commissioned by the UK Government into DSR costs demonstrating significant capital costs,? the EC said.
While the EC has appealed the court?s ruling, and Vestager provisionally concludes the UK capacity market is necessary and in the common interest, the EC now wants further clarity on whether the market provides ?adequate incentives to allow DSR to participate effectively? or whether it is disadvantaged.
It also wants more information on whether the 2 MW threshold for DSR and limited guarantees in one-year ahead auctions further hindered DSR.
?It is therefore necessary to examine in greater detail the effectiveness of the participation of all types of capacity providers in the Capacity Market before reaching a conclusion that the measure is compatible with the internal market,? Vestager said.
Subject to the results of the formal investigation, the EC would authorize the UK CM for a maximum 10 years from 2014, it said. There is no deadline for reaching a decision.
Having forced the EC to re-examine the UK capacity market, Tempus on Friday said it was challenging state aid approval of Poland?s CM. The Polish mechanism is modeled on that of the UK.
The EC should have opened an in-depth state aid investigation "to examine the evidence, in particular on cleaner, cheaper, alternatives to fossil fuel," Tempus said.
The risk is that the General Court finds in favor of Tempus and the Polish government has to suspend payments while the EC reassesses the scheme, as has happened in the UK.
"This is a message for investors in Polish coal plants,? Tempus Energy CEO Sara Bell told S&P Global Platts Friday. ?This money [from the Polish scheme] is never going to be paid out."
The UK government wants to have the EC's approval reinstated as soon as possible, Secretary of State for Energy Greg Clark said in February.
On March 5, meanwhile, Tempus issued a claim for judicial review seeking to force the UK government to claw back payments relating to Transitional Arrangement Capacity Market auctions held in January 2016 and March 2017.
?The legal basis for existing Capacity Market agreements has been withdrawn and the government has a legal obligation to return the money to customers,? Tempus said.