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German energy minister rejects call for full electricity capacity market

21 Jan 2014 16:19:52 | edem

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Germany’s new economy and energy minister Sigmar Gabriel rebuffed calls to follow other European countries and introduce a nationwide capacity market to counter potential future shortfalls in electricity supply.

Instead Germany should investigate if there could be smaller capacity markets in regions facing a particular supply crunch, the minister said during an industry conference in Berlin on Tuesday.

Capacity markets would let power companies sell stand-by generation capacity as a way to let them make money off back-up plants even if they run for very few hours.

“I am careful with big models,” Gabriel said, adding there is a high risk that a capacity market could raise costs for consumers who already pay €20-24bn for the renewable surcharge every year.

At the same conference, the CEO of Germany headquartered utility RWE, Peter Terium, called for German policymakers to move fast to launch a capacity market. “We need to start now [preparing a capacity market],” Terium said.

Terium said the French capacity market model could be applied to Germany. Trading in French capacity guarantees is expected to start in the second quarter of 2014 for 2016-2017 delivery.

In the French system, companies that supply power to end users have to buy capacity guarantees corresponding to the peak load demand of their customers. French grid operator RTE will hand out capacity guarantees to generators on the basis of how the plants they keep on line, which they can sell on to suppliers.

But Gabriel said that he does not want to include the whole German conventional power plant fleet in a capacity market. More experience was needed before introducing a capacity market, he said.

Terium and Gabriel agree the German power market is currently oversupplied and that a supply crunch is unlikely to happen until the end of this decade.

But it would take several years to implement the capacity market, and a further four to five for companies to be able to start operating any new plants built on the back of it. The new plants would then come online with very little time to spare before the capacity crunch.

Until 2017, the German regulator has the right to ban generators from shutting down conventional generation capacity that is deemed essential to grid stability and supply security ( see EDEM 20 January 2014 ).

Gabriel promised that the government will start a debate with the industry about a capacity market in the first half of this year. After the national election last year, the economy ministry is in charge of energy policy, which was headed by the environment ministry under the last government. Martin Degen

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