News
21/02/25
German power industry split on capacity market design
German power industry split on capacity market design
London, 21 February (Argus) — Stakeholders in the German power market are
divided on how best to implement a capacity market in Germany, or whether it is
needed at all, Argus heard on the sidelines of the E-World conference in Essen
last week. Instead of entertaining the "misleading" debate over centralised
versus decentralised mechanisms, in which the government tries to "delegate
accountability for security of supply", what is really needed is "centralised
accountability with decentralised assets", Stefan Joerg-Goebel, senior
vice-president for Germany at utility Statkraft, said. "The market should be
centrally organised but technologies bidding into the market should include, for
example, decentralised demand-side response and batteries," he said. But "only
the state can really secure supply". Transmission system operator Amprion
prefers a centralised capacity segment with a "local component" over the
combined capacity market proposal, according to Peter Lopion, consultant in the
firm's international regulation management and market development team. He
emphasised the importance of knowing "when and where" power plants will come on
line. Amprion also stressed that "incentives for grid-serving behaviour" are
needed for batteries in particular . In contrast, a decentralised capacity
market — not too dissimilar to that of France — is the "best solution" for
Germany, although it would first need to adapt to the "German reality", Davide
Orifici, director of public and regulatory affairs at energy exchange Epex,
said. Such a system would "better help to integrate flexibility" and "further
develop demand response", he said, adding that the impression that a centralised
system would be simpler is "false". And a decentralised element is "crucial" to
"fully leveraging the potential of the demand side", according to Jan Bruebach,
managing director at utility MVV. Nevertheless, the addition of the centralised
element would add "long-term security" and thus the German energy ministry
BMWK's combined proposal is "fine". And while not specifying a particular
design, "something at least similar to a capacity market" is important for
security of supply and to "provide incentives to hold capacity on stand-by"
during periods of low renewable generation, said Andre Jaeger, senior
vice-president of product management at trading and risk management firm Ion
Commodities. Kerstin Andreae of energy and water association BDEW agreed at a
press conference that Germany "needs" the transition to a capacity market. But
Peter Reitz, chief executive of energy exchange EEX, does not see the
introduction of a capacity market in Germany as being essential. "The same
effect can be achieved much more cheaply by introducing the obligation to
deliver into the energy-only market," he said, although a decentralised market
would "interfere the least with liquidity". And the introduction of a capacity
market in Germany would be "costly", Andy Sommer, head of fundamental analysis
and modelling at utility Axpo, said. The costs would probably be absorbed by
grid operators and the state, and eventually offloaded on to end-consumers, he
said. Energy ministry BMWK in August opened a consultation on the country's
future power market system, with four options to finance controllable power
capacities: a capacity-hedging mechanism through peak price hedging, a
decentralised capacity market, a centralised capacity market, and finally, the
ministry's preferred option of a "combined capacity market". Despite the
deadline for member states to incorporate the EU-mandated electricity market
design having passed on 17 January, the design will "probably" be implemented by
the next government, BMWK deputy director Andre Poschmann said at an industry
event last month . The capacity market question is likely to draw the most
political attention after the federal election on 23 February, Joerg-Goebel
said, adding that the successful continuation of the coal phase-out — which is
currently an "uncomfortable issue" for market participants — can be "fixed" only
with new capacity. And without a capacity mechanism, it will be "very difficult"
to invest in new peak generation plants, Bruebach said, with Lopion adding that
the coal phase-out is "dependent on" new capacity mechanisms. A bidding zone
split would harm liquidity And the decision over whether to split Germany into
multiple bidding zones remains a concern, with Argus having heard a general
consensus that a bidding zone split would negatively affect liquidity in power
trading. Larger price zones acting as a "larger mass" are better for liquidity,
according to Reitz, citing the German-Austrian bidding zone split and subsequent
reduction in Austrian power liquidity. A split would cause "disruption" to the
entire market, owing to regulatory changes and the loss in liquidity, agreed
Joachim Bertsch, senior business development manager at utility RWE, while
Bruebach said it would "crush" liquidity, disadvantage smaller market
participants and drive up costs for industries in the south of the country.
While BMWK in August rejected the "reconfiguration" of the single
German-Luxembourg bidding zone , the "pressure" to introduce multiple bidding
zones will intensify if grid expansion does not, according to Joerg-Goebel,
while Parasram said he believes "some form of split" will happen. By Bea
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