German energy regulator proposes long-term electricity balancing reserve

The German energy regulator Bundesnetzagentur (BNetzA) is proposing a reserve plant system model based on the balancing market as an alternative to a strategic reserve model, in attempted to head-off a potential electricity capacity crunch in some regions.

Some groups have been pushing for a strategic reserve as a solution to a possible future shortfall in electricity supply. Strategic reserve plants would only become operational in situations when on the Day-ahead market of the power exchange it appeared that demand might exceed supply.

Jochen Homann, president of BNetzA, told ICIS on Thursday at an industry conference in Berlin the strategic reserve plan comes with risks.

It could distort the market because power plants in reserve would not be available commercially, Homann said. It could also detract from attempts to find a market-based solution to Germany’s potential problem, he added.

“There is an incentive to take out power plants which are on the border of being profitable. This way the generation capacity which remains on the market becomes even less and the problem of a capacity shortage will become worse,” Homann said.

Instead, BNetzA proposes a reserve plant model in which these plants would be allowed to stay in the market.

“The basic idea is to get an instrument similar to balancing power which can be auctioned as an additional long-term product. This way additional revenues can be made but no capacity needs to leave the market. We are currently working on the details,” Homann said, adding that the time-frame for such a reserve product would be longer than four months.

An important advantage of a reserve product similar to a balancing market is that every market participant has a strong incentive to look for flexibility, for example through demand-side management or other market solutions, BNetzA think. Depending on the price of this energy one can assess the demand for a capacity market, Homann said.

Another advantage would be that BNetzA believes such a reserve system could be introduced by the regulator directly without having to go through a legislative process.

According to the grid operators, there will not be a capacity shortage in the coming years, Homann said. Whether this is the case in 2020 depends on new plants being built soon. “If there are incentives for building new plants then it will be ok,” Homann said.

BNetzA’s proposed model “is a bridge until a final solution is in place”, Homann said.

On Tuesday, the new economy and energy minister Sigmar Gabriel rejected calls for the introduction of a capacity market straight away ( see EDEM 21 January 2014 ).

The government seems to be unwilling to interfere in the energy market in a big way after witnessing the distorting impact of subsidised renewable power on conventional plants. Instead it is looking for an alternative solutions to the current decree which bans the closing down of power plants considered system relevent. The decree is valid until 2017 and has been criticised for its lack of transparency.

German utility EnBW launched a legal challenge against the ban after it was prevented from shutting down several plants ( see EDEM 20 January 2014 ).

During his speech on Thursday at the conference, Homann said that this legal challenge was about finding the appropriate compensation and “totally legitimate”. Martin Degen