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Final countdown for the reform of electricity markets

The reform of European electricity market is the last piece of the Clean Energy Package to be approved. It will have significant impact on wind power producers as well as on their operating environment.

With two more trilogues to go the negotiations are now entering crunch time. But as things stand there are still a number of issues that policymakers need to tackle.

The following recommendations would ensure that the necessary integration of renewables into the market is accompanied by new opportunities to compete on equal footing and the establishment of a framework that accelerates Europe’s transition towards a clean and efficient electricity system.

Maximising renewables contribution to the grid

Wind energy curtailment hit a new record of 5+ TWh last year in Germany (source). Partly because there’s between 23 to 28 GW of inflexible conventional production that keeps generating at all times. 3 to 4.5 GW of that accounts for so-called “must-run” generation that is required for technical network-related reasons. Such arrangements should be disclosed and kept at an absolute minimum. In general, volumes, costs and rationale for all redispatching actions, per technologies, should be reported and made publicly available to inform about the cost of inflexibility of the system. Redispatched units should also be compensated for the service they provide, either via a market or a regulated compensation. 

Recommendation (Electricity Regulation):

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Limiting public subsidies to back-up capacities

Today national adequacy assessments are the document used by DG COMP to assess the need for a capacity mechanism. However many fail to acknowledge the contribution of imports/exports to domestic security of supply (source). In an Integrated Energy Market, ENTSOE should be responsible for performing an EU-wide resource adequacy assessment that would become the exclusive basis for introducing a capacity remuneration mechanism (CRMs). The coexistence of national resource adequacy assessments and EU-wide study foreseen by the Council should be limited in time. Otherwise it would maintain the current status quo.

Recommendation

EU Member States have spent €32.6 bn in capacity mechanisms since 1998 and 2bn for this year only (source, source). These schemes should be only used as last resort option and temporary. Their design should be reviewed at least every 5 years, and phased out immediately if the latest adequacy assessment demonstrates that the risk for security of supply no longer exists. A maximum contract length of 1 year for existing installations would also avoid the risk of legacy costs to be borne by consumers beyond the mechanism’s lifespan.

Recommendation (Electricity Regulation)

Read more: WindEurope position

Incentivising the equal deployment of all flexibility resources

Decentralised demand response and energy storage at commercial and residential level, including electric vehicles, will be essential to integrate large shares of renewables in Europe’s electricity system. To promote the uptake of such business models, it is essential to ensure non-discriminatory access for all decentralised flexibility resources to electricity markets and mechanisms, and foster the emergence of new market players such as aggregators.
In particular:

Recommendation (Electricity Directive)

Recommendation (Electricity Regulation)

Read more: WindEurope position, Joint statement

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