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Fossil fuel and nuclear energy subsidy scheme struck down by EU court

A European court ruling has struck down an energy subsidy scheme in the UK that paid nuclear and fossil fuel power plants to keep the lights on during hours of peak demand over greener sources of power.

Business Secretary Greg Clark has moved to allay fears that energy supplies would be at risk from the ruling.

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. It is designed to ensure that power companies always make a profit in these scenarios.

But Tempus Energy, which provides services to reduce demand on the grid, claimed the system discriminated against demand reduction and in favour of fossil fuels.

“Using billpayers’ money to finance fossil fuels without their consent – with several billion pounds committed so far – shuts out more innovative solutions for guaranteeing supply, which are actually cheaper for customers,” the company said.

It challenged the European Commission’s approval of the scheme under State Aid rules.

The European Court of Justice has ruled against the Commission’s approval of the scheme, in a move which has led to the market’s suspension, including current payments.

Speaking at a speech on energy policy in central London, Clark said there was a need to study the judgment and the government was already in talks with the Commission on the issue.

But he said: “National Grid is confident it will not cause any risk to supply.”

Sara Bell, chief executive of Tempus, said the ruling should pave the way for cheaper electricity.

“Reducing our reliance on fossil fuels and increasing our use of renewables has the added benefit of delivering better air quality and bigger carbon cuts across the country,” she added.

But the ruling was labelled deeply disappointing by the energy industry, which said the market was delivering security of supply at a low cost to consumers.

Industry body Energy UK’s chief executive, Lawrence Slade said: “We are already working closely with BEIS and are fully supportive of their efforts to work with the European Commission to reinstate future auctions and continue the CM scheme.

“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 as soon as possible.”

RWE’s Tom Glover said: “We’re deeply disappointed with the decision. It has a material negative impact for RWE and we will review our obligations under the capacity market.”

But environmental groups welcomed the decision, which they hope will shift payments away from fossil fuels.

Doug Parr, chief scientist for Greenpeace UK, said: “The government’s capacity market was effectively rigged in favour of the old-fashioned dirty generation. Shutting out modern, smart technologies turns out to not only be short-sighted and foolhardy, but potentially illegal.

“The government should heed the many expert voices explaining that we’re not in the 20th century anymore, and our energy policy needs to reflect that.

“The smarter technologies that allow easier and faster uptake of clean renewable energy are ready, and urgently needed.”

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