16 Jan 2015 | Ruby Russell

Merkel's capacity market scepticism seen as signal in reform debate

Energy experts say the German chancellor's secpticism over extensive payments to conventional power plants as back-up for renewables sends a strong signal that capacity markets may not be on the cards in the upcoming power market reform. But utilities remain optimistic that politicians will ultimately warm to the idea.

Speaking at a reception of the German Renewable Energy Federation (BEE) on 14 January, Angela Merkel said she shared the renewable energy industry’s scepticism over capacity markets and that comprehensive subsidies to fossil-fuel burning power stations were not the solution to fluctuating power supply from renewable sources.

“All the studies commissioned by the energy ministry show that capacity markets are not necessary for the time being and would give the wrong signal while we still have overcapacity in the power market,” Claudia Kemfert of the German Institute for Economic Research (DIW) told the Clean Energy Wire. “Merkel has given an important signal that she shares this scepticism.”

Capacity markets of various forms are among the proposals on the table to ensure that Germany has sufficient capacity to keep the grid stable as renewables – which are dependent on the weather – make up an ever-greater share of German power generation.

Capacity markets would put a price on conventional power stations being available for times of energy scarcity, and are seen by many as a way of subsidising fossil fuel power.

Felix Matthes of the Öko-Institut – whose proposal for a focused capacity market that would favour greener and more efficient power stations is discussed in a government green paper  with options published in October – said the debate was still open and “power play” between the utilities and civil servants in the energy ministry who are opposed to any capacity mechanism could be expected in the coming weeks.

“The space left for a rational capacity mechanism [between those two positions] is very narrow,” he added, but said that energy minister and vice-chancellor Sigmar Gabriel seemed as yet undecided.

The German Federal Network Agency currently keeps some fossil fuel capacity on standby for times of scarcity. Kemfert said she believed this stability reserve would continue to be needed for the time being and should be extended when the new energy market design is agreed next year.

But the German Association of Local Utilities (VKU) said that a capacity mechanism would be more effective at ensuring that supply meets demand. “We agree that any capacity mechanism has to be carefully designed but we also believe that a market-based mechanism is preferable to a state-ordered reserve.”

In an email to the Clean Energy Wire, the VKU added that “the discussion is now under way and we are confident that we will overcome the scepticism in regard to our model of a ‘decentralised capacity market,” referring to a proposal put forward jointly by the VKU and the German Association of Energy and Water Industries (BDEW), which would require power providers to purchase capacity certificates to cover future demand.

Approached by the Clean Energy Wire, the BDEW declined to respond to Merkel’s comments but reiterated its support for a decentralised capacity market.

In an interview with the Kölnische Rundschau on 13 January, RWE Power CEO Matthias Hartung also expressed his backing for this model, saying he believed the “the realisation that we need a capacity market will prevail politically.”

“Conventional power plants are the backbone of the energy revolution,” Hartung told the newspaper. “Even if they do not run they stand as a reserve, ready in case the sun does not shine and the wind does not blow.”

The renewables industry meanwhile interpreted the chancellor's comments as clear support for their position. "Merkel shares her personal doubts about the capacity market with energy minister Sigmar Gabriel and the BWE," Hermann Albers, president of the German Wind Energy Association (BWE) told the Clean Energy Wire.

A white paper on the future design of the power market is expected in spring of this year.

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