Gas-fired producers to get less from new flexibility mechanism

Natural gas-fired electricity producers will need to share a smaller remuneration pool and accept lower prices for their output, judging by a plan for the new flexibility remuneration mechanism, now being shaped by RAE, the Regulatory Authority for Energy, following a public consultation procedure and contact with European Commission officials. The new mechanism’s plan is expected to be forwarded to the European Commission for approval next week.

HAIPP, the Hellenic Association of Independent Power Producers, locally acronymed ESAI, has already reacted against the RAE plan, expressing opposition to virtually all its aspects.

Hydropower facilities are expected to be compensated for a greater output amount through the forthcoming flexibility remuneration mechanism. It should offer hydropower units remuneration for close to 1,000 MW, up from 582 MW through the previous mechanism, which expired in April.

As a result, gas-fired electricity producers will be deprived of approximately 1,000 MW through this flexibility remuneration mechanism.

A reduced amount of 4,263 MW will be paid through the new flexibility mechanism, down from 4,994 MW covered by the previous version.

As required by European law, the mechanism will be based on an auction procedure. Starting remuneration prices for these auctions will be set at 30,000 euros per MW of output, slightly higher than the originally planned level of 25,000 euros per MW but still well under the 45,000 euros per MW starting price offered by the previous mechanism.

These conditions are expected to intensify competition at the auction, not only between the state-controlled main power utility PPC and privately owned gas-fired electricity units, but also between the privately owned facilities, themselves, when bidding downwards for the remuneration price levels they would be prepared to accept for output covering the grid’s flexibility requirements. This competition is likely to test the sustainability of certain units.

Hydropower and gas-fired electricity producers as well as Combined Heat and Power High Performance (CHP) stations will be able to take part in the flexibility mechanism’s auctions. CHP units will be entitled to seek payment for any output not remunerated through existing RES payment mechanisms.

Also, gas-fired electricity producing units will need to be able to run on alternative fuel (diesel) or possess natural gas reserves to be eligible for the flexibility mechanism’s auctions.