European electricity industry body Eurelectric has launched a report setting out a reference model for how European capacity markets should operate.

The report recommends the use of capacity remuneration mechanisms (CRM) as part of a holistic approach to market reform and called for the completion of the Internal Energy Market and the implementation of the Third Energy Package.Eurelectric Secretary General Hans ten Berge

At a conference on the subject in Brussels, Eurelectric Secretary General Hans ten Berge (pictured) acknowledged that current market signals were not encouraging any investments at all in any power generation technologies and that a CRM, as part of a new market design, would restore proper price signals. While supporting CRMs, ten Berge said that Eurelectric regretted that individual national governments had introduced these independently and recommended a regional approach to cross border trading.

Florian Ermacora, Head of Wholesale markets: electricity & gas unit at the European Commission’s Energy Directorate, agreed that capacity markets would be better operating at regional level with member states working together. “The reality is that a number of member states have proceeded with CRMs. We have to be quick in addressing this – we should have been quicker.”

The Eurelectric report calls for markets in energy-only, flexibility and capacity. It says that contracting capacity will improve long-term system adequacy and that the provision of capacity should be market-based. The model calls for trading to be open to all, available cross-border and be technology–neutral allowing both renewable and conventional technologies to bid in. The report calls for common assessments of adequacy to be done on a regional basis.

Alberto Pototschnig, director of regulators association ACER, warned that un-coordinated national CRM markets, risked distorting energy markets and not making best use of capacity. “It requires the co-ordination with transmission system operators (TSOs) to decide the extent to which it should be harmonized . Solidarity and trust is key.”

Several speakers acknowledged the conflict of interests between national governments’ desire to protect their own security of supply at times of system stress and the pan-European approach to system adequacy. “The political risk will be with us for quite some while,” said Stephen Woodhouse, director for international consulting and engineering company, Pöyry. “However, an energy-only market will not be enough in intermittent-dominated markets and we don’t currently have the right signals for cross-border energy flows.”

Pöyry has recently outlined the design for a capacity remuneration mechanism (CRM) which it believes could provide the required adaptability to meet national needs without threatening the Internal Market for Electricity.  It proposes the introduction of Decentralised Reliability Options, which it says are “in line with the realities of European electricity markets, which combine bilateral trading across a range of timeframes with high levels of renewable generation and formal arrangements for market coupling.”

In concluding the conference, Gunner Lorenz, Head of Markets Unit at Eurelectric, referred to the “value of lost load” and the potential high price of this in terms of lost productivity and, in the long-run, lost jobs and industry.

 

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