The UK’s market-wide capacity mechanism for electricity provides a solution to a supply problem that has yet to emerge, writes Phil Baker. A targeted strategic reserve is likely to be a more cost-reflective alternative, he argues.
Whether it relates to electricity prices charged to customers, the calculation of grid availability across borders, or the EU’s law-making process itself, the quest for transparency has emerged as a cross-cutting theme in Europe’s ongoing power market reform.
The on-going transformation of the EU power industry is leading policymakers to re-evaluate the current design of electricity markets. Electricity generated from renewable sources has become one of the most important sources of electricity, paving the way for a transition towards a low-carbon energy system.
The capacity market in Poland has a so-called “green bonus”, which allows a two-year extension of the multiannual capacity contracts provided that a 450 kg CO2/MWh emission performance standard is met, says Maciej Burny.
Capacity mechanisms are crucial to secure the finances of power plants that ensure France's security of electricity supply. They are also essential to attract investments in new necessary capacity by providing visibility to the market thanks to a long-term price signal, writes Virginie Schwarz.
Davide Crippa, Italy’s Undersecretary for Economic Development, has announced the country’s withdrawal from a seven-country alliance led by Poland, which argued for preserving national sovereignty over decisions to finance emergency power plants.
Figures compiled by the environmental pressure group Greenpeace highlight the lack of transparency about the amount of cash disbursed by national governments to support back-up power plants – mainly fossil fuels and nuclear.
The European Commission wants to limit state aid for power plants that EU countries remunerate to remain on stand-by in case of demand peak. As negotiations on the EU’s new electricity market enter the home straight, EURACTIV lists the main issues to watch out for in the debate.
Mostly out of pragmatism, the European Commission has adopted a rather tolerant approach to “capacity mechanisms” – national schemes that remunerate back-up power plants – accepting that EU countries face different challenges in the energy transition.
It’s a contradiction that policymakers are currently struggling to resolve. But fossil fuel back-up plants are probably necessary in the short term in order to give EU countries the confidence to bring in higher shares of renewable electricity, says Michael Pollitt.
Detractors of capacity mechanisms argue they are mere state aid for dirty fossil fuels that should be eliminated as soon as possible while supporters claim they provide vital back-up in the transition to renewable electricity. The fact that both are correct is leaving Europe in a quandary.
As the EU’s power market reform enters the home straight, EURACTIV.com takes a look at so-called “capacity mechanisms” for back-up electricity and whether they help or hinder the EU’s twin objectives of supply security and decarbonisation.