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France pushes ahead on electricity capacity mechanism

20 Dec 2012 19:08:01 | edem

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France is pushing forward plans to introduce a capacity mechanism in 2015 to ensure generation meets peak demand, despite the European Commission's consultation on similar schemes at a European level remaining unfinished.

France's energy minister signed a decree to develop the mechanism this week, according to a statement from the ministry published late on Wednesday.

The mechanism will require electricity suppliers to provide guarantees of adequate electricity provision, either by reducing demand from their client base or by purchasing capacity guarantees from producers. Suppliers will be responsible for proving that they can meet their clients' needs (see EDEM 22 November 2012).

Suppliers can also use certificates from their own existing or future capacities, or buy certificates from producers or consumers on the capacity market or through bilateral contracts.

Peak consumption

Peak consumption in France has been increasing on average 3% per year, with a 28% increase seen over the last ten years according to French energy ministry figures. This compares with a 0.6% annual increase in baseload consumption.

One of the main reasons for France's difficulty in meeting peak demand is the country's widespread dependence on electric as opposed to gas-fired heating.

In winter, at the peak consumption time around 19:00, demand is almost twice average levels, the ministry said. At that time, a 1°C reduction in temperature leads to approximately 2.3GW more consumption. Record consumption usually occurs when the intra-day peak time coincides with the winter demand peak, according to the ministry.

The ministry cited the demand spike on 8 February 2012 around 19:00, when demand reached 102.1GW, compared to an average throughout the year of around 55GW (see EDEM 8 February 2012). This led to Day-ahead Peakload index values of €177.634/MWh on the day, according to ICIS data - while the record value of €268.713/MWh was set two sessions later.

Workings of the mechanism

Power producers and consumers able to make demand reduction guarantees will be allocated certificates according to how much their capacities reduce the risk of blackouts, or how much generation their capacity is expected to deliver at peak demand times, according to France's energy regulator CRE. The amount of certificates received will depend on installed capacity, as well as the technological characteristics of the capacities.

The French grid operator RTE will determine the precise rules and methods used to calculate the amount of certificates holders of capacity are entitled to. Certificates will be issued for both future and existing supply.

In case of future capacity, the capacity must be operational when the delivery period comes. The capacity market will be an additional market, where capacity certificates will be traded.

The ministry stated that the advantage of the system is that it brings complementary remuneration to electricity producers for making their capacity available, as well as attributing quantifiable value to demand reduction.

Concerns

The ministry considered that the evolution of the European energy market reinforces the necessity of this mechanism, but concerns have been raised that national capacity mechanisms undermine European integration (see EDEM 28 November 2012 and EDEM 28 September 2012).

"France is a very nationalistic country, but a country really can't rely on a European mechanism for something like this. It is like gas storage. Each country has its own," said a French energy analyst.

The European Federation of Energy Traders (EFET) were unsurprised at the introduction of the mechanism in the sense that there had been speculation that this would happen. But an EFET spokesman did voice surprise that France did not wait for the end of the European Commission's consultation on capacity mechanisms before announcing its introduction. The consultation launched on 15 November, and is due on 7 February.

EFET is concerned, as the mechanism represents an intervention on the market, and can also, as any distortive measure, undermine competition. "It's probably a bad idea," he said. EFET will be publishing a paper analysing which types of capacity mechanisms are least distortive in the near future, he told ICIS.

CRE suggested that it is still too early to assess whether the capacity mechanism would undermine competition in France's electricity market, but, according to a spokeswoman, this subject could be examined in future.

The precise rules on how the mechanism will work will be determined in the second half of 2013, according to the ministry's statement. BM

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