EFET Demands Strengthening of Market-Related Mechanisms Instead of Capacity Markets

Contribution to the discussion about introducing capacity markets, the German Section of the European Federation of Energy Traders (EFET) demanded to strengthen market-related mechanisms particulary regarding renewable energy to ensure the security of supply.

While over capacities existed in the German electricity generation market in the past, there are fears for the security of supply after the German energy turnaround following the Japanese nuclear accident in Fukushima.  Besides, the amount of intermittent renewable energy is rising, driven in particular by the Renewable Energy Sources Act (EEG) that provides for fixed feed-in tariffs that are higher than conventionally traded energy. Hence, capacity markets, especially for operating reserve, have been suggested to encourage investment in flexible power plants that can quickly react to the demands for additional or reduced output.

EFET, however, speaks out against expanding the EEG mechanisms to the generation of conventional energy, warning of an increasingly planned energy market with rising costs and decreasing efficiency. Free markets were best suited to ensure that the necessary investments were made with the lowest costs to the overall economy, EFET says. The association therefore proposes to strengthen the liberal market design, not only in Germany, but also on the European level. This included a centralised organisation of the market for operating reserve and an improved market integration of renewable energy sources, EFET says. In addition the organisation demands that electricity grids are speedily expanded.

According to the energy information provider energate, Economics Minister Philipp Rösler (Liberal Democratic Party – FDP) takes a critical view of capacity markets, and first wants to examine if other options exist that interfere less with the free market. The German Cartel Office and the Federal Network Agency also had mixed feelings, energate says, pointing out that the Federal Association of the Energy and Water Industry (BDEW) wants make a statement with regard to capacity markets in autumn, but has called the discussion “half-baked” as participants used differing definitions of capacity markets.

In its recent report “Competition in the Gas and Electricity Markets”, the Monopolies Commission (Monopolkommission) advised to use the opportunity the nuclear exit provided for a comprehensive change of the German energy landscape. This might include capacity markets, the commission said. On the whole, however, the commission was cautious with regard to capacity markets. It wanted to further deal with the matter in its next special energy report, the commission said, pointing out it had to be examined whether there was indeed an investment problem and if so, when the need for which generation capacities would arise and what concept should be used to address the issue.

Bundesverband Neuer Energieanbieter e.V. (Federal Association of New Energy Suppliers – bne) recently presented a paper on “Capacity Markets – Framework Conditions, Necessity and Key Point for Implementation. The concept includes an auctioning model with an independent market-coordinator who assesses whether there is the necessary capacity to ensure the security of supply.

Source: EFET Germany

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