How do we keep the lights on in Europe ?

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How should the capacity markets be designed to avoid blackouts and to ensure energy security?

Filip Grzegorczyk, CEO of Tauron and board member of PKEE, conveys his message on the most important part of the Clean Energy Package and explains why capacity markets are needed without emission performance standard set at the level of 550 g CO2/kWh.

Conventional electricity generation in Europe, including in Poland, must tackle the same issue: the deficit of revenues from electricity production (the so-called “missing money problem”). This creates a higher risk of capacity shortages in the long-term (the “missing capacity” phenomenon).

In the current market design, the economic sense of building new power plants is disputable and existing generation plants are becoming less profitable. Poland is preparing intensively for implementation of the capacity mechanism which will help to solve these problems. In this context, PKEE together with Compass Lexecon has prepared a detailed analysis of the rationale for implementing the capacity mechanism.

Compass Lexecon has analysed different possible electricity market designs as well as the potential impact of the emission performance standard set at the level of 550 g CO2/kWh (the so-called EPS 550) proposed by the European Commission as a condition for an appliance of capacity mechanisms, under draft Regulation on the internal market for electricity.

See key findings of Compass Lexecon study:

The unintended consequences of the EPS 550
EPS 550 increases import dependence:
Poland’s gas consumption would increase by 70% by 2040. New gas-fired power plants may face construction delays that, together with lack of transmission infrastructure, could endanger security of supply.
EPS 550 increases costs for consumers:
In comparison with the capacity market scenario without EPS 550, the EC proposal increases net costs for consumers in Poland by EUR 240 million from 2017 to 2040 because of the infrastructure investments required.
EPS 550 decreases social welfare by EUR 980 million
between 2017 and 2040 (in relation to capacity market scenario without EPS 550).
EPS 550 increases CO2 emissions reduction costs
by EUR 5/t of CO2 equivalent and undermines the EU ETS instrument

A Report for the Polish Electricity Association