To ensure security of supply, the federal government is planning a power plant strategy with a capacity mechanism for the electricity market. A study by bne sees a security obligation as a more efficient solution for the energy market.
07/15/2024 – The federal government's power plant strategy provides for conventional and hydrogen-capable gas power plants to be subsidized by the state at short notice. The aim is to strengthen security of supply. From 2028, the power plants are to provide reserves via a capacity mechanism – and will also be paid for this. How such a mechanism should look has been discussed in the platform for climate-neutral power systems in recent months, an option paper will soon follow, reports the Tagesspiegel Background. The government plans to set key points in October.
Capacity mechanisms are already being used in neighboring European countries Belgium, Poland and France. However, a capacity mechanism would be new for the German electricity market. There is currently a so-called energy-only market in Germany, where only amounts of electricity are sold on the market that are actually produced and delivered. How efficiently a capacity mechanism regulates security of supply is controversial in the energy industry. Energy market players fear that the energy market with a capacity mechanism will be permanently dependent on government funding and planning. A security obligation could secure the energy supply more efficiently and cost-effectively, is one commissioned by the Federal Association of the New Energy Industry (bne) study.
„ We need an intelligent market framework instead of a planned economic promotion of capacities “, says Robert Busch, managing director of bne. „ It cannot be that we are displacing the market growth of various flexibility offers in favor of the promotion of natural gas power plants with an at best uncertain hydrogen mortgage. The foreseeable next funding race between renewable energies and new power plants should also be avoided. “
Not adequately secured
The basic study discusses how security of supply in the German electricity sector can be secured in the future. The current electricity market is analyzed on 240 pages and capacity mechanisms are discussed that could remedy previous deficits. The study authors conclude that security of supply can be guaranteed more efficiently and cost-effectively through a market economy organization than through a state-organized capacity market. A security obligation could strengthen the energy market and provide sufficient incentives to create the necessary capacities.
To put it simply, an obligation to hedge means that electricity suppliers have to secure their delivery obligations on the futures market, for example. This is not currently the case. Companies that do not protect themselves can quickly go bankrupt in the event of strong price fluctuations. Since a basic supplier has to accept the stranded customers and pay them accordingly, the risk that these companies take is borne by other market players. An example of such a case was the drastic rise in energy prices in the gas crisis.
In principle, an obligation to hedge is also specified in the European Internal Electricity Market Directive, the implementation of which is still pending. However, the directive also provides for the possibility of a capacity mechanism.
Promote incentives instead of government
A number of market deficits are identified in the study. Electricity market players currently have no incentives to invest in taxable performance because there is no obligation to hedge. Consumers would also have no way of signaling the price they were willing to pay for a safe service by choosing a tariff. Political uncertainties further increased market restraint, as it was not clear how the market would be organized in the future and what would be promoted.
False incentives could even be set through rigid grants. Constantly increasing capacities of renewable energies and flexibility options on the market aimed at making optimal use of eco-energy. It is not a sensible step to commit to a technology at this stage without knowing whether it will be an efficient and cost-effective solution in the future. The power plant promotion program planned by the federal government makes Germany's energy system path-dependent of gas and hybrid power plants, which must be subsidized on a permanent basis.
The interaction between decentralized producers and consumers is also becoming increasingly complex due to the increasing share of renewable energies. Central, state control is unsuitable for regulating such a complex system.
Stay flexible
Instead of a capacity mechanism, the authors of the study recommend further developing existing systems. In the short term, the smart meter rollout and dynamic tariffs should be implemented for private customers. Hydrogen should not receive prior funding in order not to suppress flexibility options for other technologies. As a crucial step, the introduction of a security obligation would provide incentives for investors to invest in the most efficient taxable capacities and thus strengthen security of supply in a market economy. jb
source : https://www.energiezukunft.eu/politik/freier-strommarkt-oder-kapazitaetsmarkt