German capacity market under debate

The debate on whether Germany should introduce a capacity market was again the focus of the country's energy policy at an industry event in Berlin, with German economy and energy minister Gabriel laying out the government's schedule for making a decision on the matter.

The economy and energy ministry plans to present a proposal for the introduction of a capacity market by the end of this year, Gabriel told delegates at the BDEW energy conference in Berlin today.

Gabriel then expects to debate these proposals and start the implementation of a framework for a capacity market in 2015 before making a final decision in 2016.

The minister reiterated that a capacity market will not equate to subsidies for conventional power plants. "When it comes to capacity markets, this cannot be a Hartz 4 for power plants — where you do not work but earn money", he said, referring to Germany's unemployment and welfare benefits system.

Instead, Gabriel said back-up power plants for intermittent renewable generation should compete in a separate market to the wholesale power market. Gabriel also reiterated that he will seek co-operation with other European countries.

The conference drew comments from both opponents and supporters of capacity markets.

The calls for a capacity mechanism show that European utilities have still not fully grasped the meaning of competition, more than 15 years after the liberalisation of the energy markets, University of Cologne energy economy institute director Marc-Oliver Bettzuege said.

Power generation is a risky business under competition, Bettzuege argued, and utilities have systematically neglected this risk. For instance, the risk is insufficiently reflected in utilities' balance sheet structures, in particular of smaller companies.

Germany's power market is being distorted not only by the renewable energies law (EEG), but also by keeping a single price zone in both the north and the south, Bettzuege said, and it is these distortions that should be addressed. Power prices in the south of Germany are lower than they would be under a system of "bottleneck oriented bidding zones". An adequate south German power price would automatically trigger a response from Austrian and Swiss pumped storage power plants, and make it unnecessary for south German power plants to shut down early, Bettzuege said.

Power market coupling within Europe should be linked to real bottlenecks, and not to national borders where such bottlenecks do not always exist, Bettzuege concluded.

BDEW president Hildegard Mueller rejected Bettzuge's arguments as "too theoretical". And Mannheim-based engineering group ABB member of the board Martin Schumacher warned that a countrywide blackout would cost at least €1bn/d, making it imperative to look at concrete solutions.

But while setting up national capacity markets is rejected as a step backwards, a pan-European capacity market faces the problem that it would need to be flexible enough to cater for all the different needs of the different countries, French energy association UFE president Robert Durdilly said. In France, the main problem is the extremely high winter peak, in Germany, the main problem is the strong generation of volatile power from renewable energy sources.

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