Britain’s scheme for keeping the lights on through the winter has been thrown into chaos after a European court forced it to be suspended, triggering fears over security of supply.
The government said that its “capacity market” scheme, which pays power station owners subsidies to guarantee that they are available to generate electricity if needed, had been halted after the ruling.
Up to £1 billion in payments for the coming year now cannot be made, denying energy companies a key source of income and casting doubt on whether their plants can still be relied on for back-up supply.
The ruling also has raised fears over electricity supplies for future winters, for which billions of pounds in further subsidies have been awarded to existing and proposed plants.
Analysts at Jefferies said that if the scheme was blocked permanently, it could cause the loss through closure of as much as 20 gigawatts of old coal and gas plants and would “create serious security of supply issues”.
The government started operating the capacity market scheme in 2014 amid concerns that proposed plant closures could leave the country at risk of blackouts. Auctions are held each year to award retainer-style payments to plants for future winters.
Ministers have said that the scheme “guarantees homes and businesses have a reliable electricity supply all year round” and guards against price spikes. It is a particularly important source of revenue for plants that run only infrequently as “back-up” at peak times or when wind farms are not generating.
Several power plants have been kept open solely because of the promise of payments from the scheme, while dozens of new projects, including batteries and small gas generators, were due to be built because the payments had made them viable.