Gas industry calls for capacity market debate as Germany exits nuclear and coal
Clean Energy Wire
As Germany plans to exit both nuclear and coal power generation over the next years, gas plants will become more important as a secure backup for renewables at times of low winds or little sun, said gas industry initiative Zukunft Erdgas. The government must discuss mechanisms to incentivise additional construction of new plants, such as capacity markets, the lobby group said. "We must now discuss framework conditions for investments in new power plants so that the additionally required gas-fired units are connected to the grid by 2030,” said Timm Kehler, head of Zukunft Erdgas. German energy company Uniper’s CEO Andreas Schierenbeck said Germany needs a consensus on how to ensure future supply security. “Until that is clear, nobody will construct power plants.” Zukunft Erdgas presents several mechanisms “to optimise the energy-only-market” in a separate paper, such as auctions for a “strategic capacity reserve”, a focussed or comprehensive capacity market, or simple direct payments to operators per installed capacity they keep in standby mode.
The discussion about the future role of gas in Germany’s energy transition is ongoing, with the government saying it will play an important role as a bridge fuel. In 2019, as coal use fell significantly, power generation from gas increased 11 percent, compared to the previous year. In contrast to an energy-only-market, in which operators are paid for the kilowatt hour they produce, in the capacity market they receive remuneration for the capacity they keep ready for certain situations. Germany in 2016 decided against capacity markets, as these “can be expensive and inefficient”, and instead bet on the power of the market and free price formation. Due to high operating costs, gas plants are often pushed down the merit order and throttle production, especially when there is a lot of renewable electricity available. Under the current market design, power station operators are meant to benefit from peak prices in times of scarcity, so they invest in flexible power stations, load management and storage capacity. A study by the Institute of Energy Economics (EWI) at the University of Cologne accompanying the press release looked at the current German power market design and laid out issues that could endanger supply security, concluding that more research is needed. “It is unclear whether the energy only market alone will be able to incentivise the expansion of controllable power,” said Simon Schulte, manager and head of gas markets at EWI.