Germany remains split on future electricity capacity market plans
Germany remains at odds over how to avoid a capacity crunch in the future, as debate rages over how to ensure system security with additional renewable generation.
While some said that the market could create enough incentives, it is questionable whether politicians would be comfortable with the idea of allowing power prices to spike in certain hours. "If you want an additional security net, then you need to consider a system change," said Statkraft Markets managing director Jurgen Tzschoppe on Wednesday at the Eworld conference in Essen.
Germany has banned shutting down system-relevant power plants expiring at the end of 2017 (see EDEM 14 December 2012), but there is strong feeling that an alternative solution still needs to be found. "There is a danger that in the end, every power plant is considered system-relevant," Tzschoppe said.
Capacity markets
Capacity markets are one proposed solution, with proponents claiming that these would offer a long-term incentive to build power plants. However, the question is whether such a market would be up and working in time for 2020.
These proposals face some opposition from Berlin as well as Brussels (see EDEM 4 February 2013), as national schemes could counteract the EU's aim of creating a single European electricity market.
On this basis, the EU has implied that any capacity markets should be introduced with caution, and plans to issue guidance on the subject in June 2013 (see EDEM 1 February 2013).
"We don't have any particular prejudice against capacity markets if they are really necessary, but if you introduce a subsidy for conventional power plants on top of the renewables, then the world goes crazy," Philip Lowe, European Commission director-general for energy said on Monday.
Nevertheless, tight margins are forcing even newer conventional generation plants to stop generation, and calls to introduce capacity markets are growing (see separate story). Individual national capacity market schemes of EU member states are "simply taking place," said Jurgen Tzschoppe. "If you can just forbid this per decree, I cannot say but we need to address realities."
Statkraft has come out against payments to individual plants, despite the pain of low gas-fired plant margins (see EDEM 6 February 2013). Instead, the utility has proposed a capacity market in Germany similar to the models proposed in the UK and France, where capacity is auctioned (see EDEM 15 December 2011).
This scheme would take time to be fully implemented, but in the meantime, Statkraft suggested a flat rate of €15/kW/year for system-relevant plants, saying this would be less than 10% of the current renewable subsidy payments.
German utility E.ON has made similar suggestions, stating that payment to keep its 1.43GW Irsching gas plants on line was a cheap form of insurance to keep the system stable (see EDEM 24 January 2013).
Strategic reserve
A second proposed solution is introducing a strategic reserve, which proponents claim would be less interventionist. In addition, a strategic reserve also could include demand-side management, Markus Peek from consultancy r2b suggested at E-World.
But critics say that in such a model, every power plant might eventually be included, which may keep power prices low and therefore fail to offer incentives to keep modern plants on line, and instead prolong the life of older gas-fired plants.
Many in the industry warned against implementing a complex new market design, instead working on evolving the current market structure, particularly in integrating renewables.
"If we know [the probabilities for certain scenarios] then we can draw the right conclusions. That is why I am warning against taking large single steps towards a system change. We can make amendments in the existing system which will reduce the costs for renewable significantly," Statkraft Markets CEO Torsten Amelung said.
Renewable generators should be committed to take more responsibility for the stability of the whole system, as the remaining conventional plants cannot shoulder the burden alone, Amelung told ICIS in January.
"We are not in a phase of market integration [of renewables] any more, but in a phase of market penetration," said Felix Matthes from research and consultancy Oko institute. Martin Degen
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