German Power Market Design: Handelsblatt Discussion Round Agrees on Need for Fast Political Decision – No Unanimous Support for Capacity Market

At the second day of the Annual Handelsblatt Energy conference, a discussion round of market participants and regulators followed up on the key note speeches of Rainer Baake of BMWi and comments of Johannes Teyssen, CEO of E.ON, on the current debate whether also in Germany a capacity market should be introduced.

Lex Hartmann, Member Executive Board of TenneT TSO GmbH, started by making clear that, either way, a political decision on the energy market design is needed rather soon, as it is clear that there will be a lack of capacity in the mid term. As regards market design, he argued that rather than a capacity market, an enforced energy only market should be the best solution to ensure that sufficient capacity is available. Part of such a concept must be tight requirements of suppliers – in their function of balancing responsible parties – to ensure that the power needed by their customers at any given point in time is contracted and available.

Andreas Feicht, CEO of municipal supplier WSW and Vice President of the association of municipal suppliers (VKU) stressed that security of supply has to be ensured on a national level. From a customer perspective, flexibility and demand side management only makes sense if this is a possibility to save money. In a decentralized capacity market – following the line of the concept proposed by BDEW and VKU – this would be possible as capacity costs could be reduced in a transparent manner. In an energy only market however, it will be very difficult to reduce costs by avoiding or reducing consumption during the (rather few) hours of peak prices. In addition to that, as costs of reserve power will be included in network fees and thus increase system charges, the general costs of supply will increase and the costs which could be influences by customers would be more limited. In addition to that, the respective costs and the possibility to influence such costs will not be as transparent as in a capacity market. It is therefore a shortcoming of the BMWi Green Book that it discusses demand side management and flexibility mechanisms separately from the aspect of market design. A decentral capacity market would be capable of integrating both aspects, and thus increase transparency and provide signals for the value of capacity at any given point in time.

Lord John Mogg, Chair of the Board of Regulators of ACER, pointed out that the development of    integrated energy markets in Europe and the increased role of renewable energies creates unique challenges, and in that regard new mechanisms have to be considered – including capacity mechanisms – to ensure security of supply.

Source: Handelsblatt Jahrestagung Energiewirtschaft 2015

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