Tuesday, March 24, 2015

Germany's electricity market policy this week: A pure energy market with a safety net

There are 2 aspects of German energy policy that are clearly desired:
  1. they wish "renewables" - which for the sake of this post are better called by Rod Adams' term "unreliables"
  2. they don't want to subsidize fossil fuel generating stations
The two desires probably aren't compatible if one defines paying for capacity as a subsidy, which seems to have been the government's position since prior to the last election when then Minister Altmaeir stated"I am against blanket subsidies for fossil energy, which would only increase power prices."

I'll review some recent news of how Germany's attempt to structure a market that could allow sufficient capacity at all, or maybe just most, times

New power market design without capacity mechanism in ministry plans | Clean Energy Wire
The German energy ministry has opted for a reformed energy only market (EOM), in which back-up power stations are financed through sharp peaks in power prices. Utilities insisted that a decision on the market's design - either an energy only market or their preference, a capacity market - was still open, saying they needed to be paid for keeping capacity available in the absence of power from renewable sources.
The government has rejected the idea of financial support for fossil-fuel power plants to back up fluctuating power from renewables, a leaked document agreed by the energy ministry and Angela Merkel's chancellery shows. In the paper seen by the Clean Energy Wire, the government argued it was convinced its plan without a capacity market would "guarantee a high level of supply security at low cost."
Reforming the power market is one of the next big steps in the country’s transition to a low-carbon economy, the so-called Energiewende...
continue reading at Clean Energy Wire.

The article notes that in an Energy Only Market. "Supply for peak demand should be secured by letting investors in back-up power stations make very high profits in times of scarcity." I'll opine this is a theoretical belief (I suspect the odd rolling blackout would be preferred), but it is the theory, and the place it's most pursued is probably Texas, where the maximum market price is being raised towards $10000/megawatt-hour.

Handelsblatt has a subscriber-only article on the topic titled, Gabriel Pulls Plug on Utility Bailout.

So the first storyline is that there will be no capacity market - because paying for capacity would just be propping up old utilities and their fossil fuel generating stations.

The other storyline is that Germany will be putting out calls for capacity

German government planning eight new power plants to cover reserve capacity
A document from the German government proposes the construction of eight new power plants providing around 4 GW in back-up capacity.
The paper seen by Reuters emerged from the economy ministry and shows no inclination towards generous pay-outs proposed by utilities.
The projects would be tendered at auctions and awarded to the lowest bidders and the capacity would then be in place to guard against network black-outs, a greater risk because of Germany's move away from nuclear and fossil fuels and use electricity from intermittent wind and solar units instead.
"The capacity reserve would offer the power market an additional 'belt and braces' insurance," the paper said.
Under the plan, the utilities offering the capacity, would remain the owners of the plants
 continue reading at Power Engineering International

Reuters' article on the same "capacity reserve" topic is Germany outlines plans for reserve power capacity-government paper:
Under the plan, the utilities offering the capacity, would remain the owners of the plants but could only operate them to cope with emergencies, not to supply the market normally.
This would be rewarded by a standby fee, charged to consumers and monitored by the energy regulatory authority...

If activated, utilities would have to pay for the output, as they were be tasked with ensuring they produced enough to meet demand.
I suspect this is not yet a path to a coherent policy, and it may never become one. In 2012 I was writing on Germany rejecting a capacity market in favour of a strategic reserve, so the latest rejection of a capacity market has me methinking "the lady doth protest too much." Also in 2012, I was writing on the UK being on the verge a capacity reserve over paying for capacity, and that ended up all wrong; the capacity auction was held recently in that country.

Personally I favour a strategic reserve model, because it can remove the dirtiest plants from operation while retaining their capability for urgent periods. If the Germans really favoured such a model they would not be inferring the plants should be new. 

The bigger issues are; when would the strategic reserve be utilized, and who should pay for it?
The generators in the market should pay for it (with a fee on all generators allowed to bid into the market at all times), and those generators should agree to the triggers that activate the strategic reserve.

Easy peasy.

The trouble being that if you believe a capacity payment is a subsidy (for fossil fuel generation), you probably also think a fee is a tax (on renewable generations).

1 comment:

  1. The Globe and Mail assembled a number of letters they received in response to the article and posted them to http://www.theglobeandmail.com/report-on-business/rob-magazine/the-great-nuclear-debate-letters-responding-to-the-deep/article23406764/