23 Feb 2016 | Kerstine Appunn, Sven Egenter

Capacity markets will not be dominant in Europe - energy state secretary

A reformed energy-only market and interconnections with electrical neighbours are Germany's visions for a future European power system, energy state secretary Baake says. Utility industry head Kempmann warns against splitting power price zones.

Capacity markets will “most certainly” not be the way forward for the European power market, state secretary Rainer Baake from the Ministry for Economic Affairs and Energy said in Berlin. The only one of Germany’s 12 “electrical neighbours” establishing a capacity market was France, and its mechanism was currently under scrutiny as illegal state aid, he told the “Smart Renewables” conference of German utilities association BDEW. Most states were more interested in the new German power market based on a reformed energy-only market.

The German government has opted for a “power market 2.0” which will allow for free price formation, including price peaks and the “guarantee” that the state will refrain from interfering in the market.

Baake stressed that pan-European solutions were always preferable to secure stable power supply across the continent, including with Germany’s eastern neighbours and Austria. “We want a European solution,” he said referring to the debate over splitting the price zone with Austria. “We are in intensive talks with the Austrians, the Czechs, the Polish and the EU Commission. We want to fuse the regions and introduce flow-based market coupling in the whole region,” he said.

Within Germany it was necessary that power bought in the windy north could be transferred to the industrial south, otherwise a single price zone didn't make sense. The three large north-south grid connections needed would be build, Baake said.

Speaking at the same conference, BDEW president Johannes Kempmann also called for better integration and coordination between Germany’s Energiewende and European policy. However, he pointed out that a number of European countries had introduced capacity markets. The BDEW had called for a capacity market as part of the power market reform, saying such a mechanism was necessary to back up fluctuating renewable energy sources and secure investment in future power generation. Kempmann also warned against splitting price zones in European electricity markets. The Federal Network Agency and European grid regulator ACER had suggested that the Austrian-German price zone could be split because of loop flows and increasing re-dispatch costs.

Read a CLEW factsheet on re-dispatch measures here.

Read a CLEW article on loop flows here.

Read a CLEW factsheet on the new power market design here.

Read a CLEW dossier on Germany’s electricity market here.

Read a CLEW dossier about the Energiewende in the European context here.

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