European Commission Allows UK to Subsidise Fossil Fuel Generators

Despite being ruled illegal last year, the European Commission has once again approved the UK’s fossil fuel subsidy scheme.

This could result in £1bn in subsidies being granted to the largest fossil fuel generators in the UK for backup power over the winter months.

Last November, the European court ruling halted the government’s ‘capacity market’. This resulted in an investigation into whether EU state aid law was being broken by the UK’s plan to pay subsidies to power plants in order for them to remain open.

The owners of the UK’s gas, coal and nuclear power plants will now be paid £990m in order to guarantee that they will maintain energy supplies this winter.

Business secretary, Andrea Leadsom, said that the capacity market would also pay back money owed to generators for the previous winter (when the capacity market was suspended) with the amount owed being around £1bn.

She said that the European commission’s decision proved that the capacity market’s design was fit for purpose, and that the commission’s approval would allow for it to keep maintaining the security of the UK’s energy supply.

Energy companies make bids many years in advance to provide backup power over winter, with the subsidies being bill-payer funded.

The European commission initially approved the scheme in 2014, but Tempus Energy’s successful appeal to the European court of justice against its approval called the whole scheme into question.

Tempus claimed that the policy undermined energy-saving schemes as it sought to increases energy supplies in order to meet demand instead of implementing measures in order to reduce energy consumption at a consumer level.

Energy lawyer at ClientEarth, Sam Bright, 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.”

£75m is expected to go to coal company Drax for energy generation in the current financial year, with German energy firm RWE expected to receive a total of €280m - €100m owed from last year, and €180m for the current financial period. RWE runs several gas plants in the UK along with Wales’ Aberthaw coal plant.

SSE and EDF Energy are both also expected to make a significant amount from the capacity market for their gas plants and nuclear plants respectively.

Chief executive of RWE Generation, Roger Miesen, 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.”