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UK Electricity Prices Could Double Due To EU Court Ruling

The Sunday Times

Electricity prices could double after the government suspended the UK’s system for ensuring there is a back-up power supply, experts have warned.

The wholesale power price could hit £121 per megawatt hour (MWh) by next winter unless the so-called capacity market is reinstated, according to a report — risking higher energy bills for millions.

The government suspended the capacity market on Thursday after the European Court of Justice (ECJ) found it breached state-aid rules. Under the mechanism, which had originally been cleared by the European Commission, power stations are subsidised to be on standby to provide extra electricity for the UK’s main network immediately, if needed. Some businesses are also paid to be ready to reduce their energy use when needed. However, payments and auctions have now been suspended while the government tries to find a way to re-establish the scheme.

If no solution is found, projects could be pulled as they might no longer be economically viable, and prices could be pushed up by limits on supply. Prices on future electricity contracts leapt by an average of £1.40 per MWh on the day after the announcement, experts said. […]

The ECJ ruling has thrown the energy market into disarray, with many projects relying on the scheme. Shares in the utilities sector fell up to 6% last week.

City analysts say power companies are likely to find it much harder to secure debt financing due to the risks. Some estimate the industry has been relying on about £3.5bn of underlying profits to come from the capacity market.

Energy companies have described huge confusion about what the suspension means, including whether they face penalties for not being ready to supply power if needed.

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