Cross-border electricity flows need better TSO coordination, as do capacity measures set by national policymakers, if Europe wants to achieve its energy security policy objectives. As Fabien Roque, senior vice president for Compass Lexecon Energy put it: “We will only be able to address issues of coordination in capacity markets if we can deal with simultaneous scarcity situations.”
Electricity prices kept falling in recent year and the downward trend for forward prices is anticipated to continue. Yet, the opinion amongst industry leaders at Powergen Europe remains divided over the most efficient methods for ensuring stable supply of electricity throughout the continent.
“Capacity payments are a key factor for the electricity market. The trend to more renewable generation poses a challenge. It is important that any capacity mechanism is justified by the need for energy security but the situation varies greatly from country to country,” said Umberto Penco Salvi, partner at Clifford Chance.
Generator support for cross-border energy flows
Given the diverse energy mix in EU member states, and overlapping legislation, the path towards greater cross-border cooperation remains complex. Any future incentives should provide the correct market signals.
“In terms of the model for cross border participation the best approach depends from country to country. In the UK, the interconnector participation approach would be optimal as it favours the building of new interconnectors which are in need.
However, in countries where more established interconnectors exist would favour support for the generators,” Roque added.
EU investigates ‘market distortions’
While market incentives can, to some extent, be calculated within a specific country or generating zone – the situation becomes much more complex when cross-border effects are considered as these can create distortions.
“Often capacity mechanisms can undermine demand response and can also cause distortions between member states. They also tend to distort investment signals,” Matt Wieckowski of DG Comp at the European Commission, said, adding that the current EU investigation into French capacity measures was due to ‘concern over cross-border participation’.
The impact of French capacity mechanisms on German power prices was less than €1 per megawatt, according to Roque, as compared to the impact of German renewable policies on French prices which was somewhere between €5-8/MW.
Given the need for supply security many players have backed capacity payments but not all experts agree on direct capacity mechanisms as opposed to energy-only-markets.
“Value for flexibility must be created to attract investments,” said Wärtsilä's vice president Melle Kruisidjk. “We are of the opinion that the energy-only-markets are well positioned to provide that incentive and encourage market players.”