capacity mechanism

Capacity mechanisms crucial for energy storage investors

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Current European debate on capacity mechanisms represents a key factor in business plans concerning storage projects with standalone batteries as the mechanisms can potentially determine the viability of such investments, market officials have told energypress.

A number of investors are already considering the prospect of merchant storage projects with standalone batteries, in other words, projects that will participate directly in the market and derive their revenues from it, primarily, without receiving operational or investment support, as is the case with projects participating in auctions, the market sources added.

Direct market participation applies for projects that greatly exceed the capacity upper limits of auctions, set at 100 MW per project, meaning market participation is essential for their sustainability.

Though investor considerations for such storage projects are still at embryonic stages, as analyses and studies remain in progress, the importance of capacity mechanisms for their viability has already become clear, the sources stressed.

This is so as revenues derived from capacity mechanisms constitute steady income that would prove pivotal in the bargaining power of investors when seeking project financing support from banks.

German-French nuclear dispute delaying capacity mechanism

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Greek government efforts for the establishment of a capacity mechanism concerning gas-fueled power stations have been bogged down, indefinitely, by a long-running dispute between France and Germany over nuclear energy. Paris is seeking to secure a greater role for nuclear energy in the European Union’s energy revamp.

According to reliable sources, this nuclear dispute is the only unresolved issue and one remaining obstacle to the EU adopting a new set of regulations for its electricity market reforms. A text for the reforms was established at an Energy Council of EU energy ministers in June.

The new set of regulations, in the context of capacity availability mechanisms, includes a provision enabling remuneration for gas-fueled power plant availability, if these plants meet required technical specifications. The text also permits the implementation of a mechanism rewarding such power plants for flexibility.

According to the same sources, developments on these mechanisms are expected later this month, under the shadow of the German-French nuclear energy dispute, which has derailed any schedule that may still exist for the EU’s electricity market reforms.

Berlin has expressed a preference for these reforms to be completed following the EU elections next June, while Paris, in response, has demanded no less than a partial agreement before the end of 2023.

 

EU adopts Greek proposals for price protection, flexibility

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The Energy Council of EU energy ministers, which convened yesterday, has adopted two Greek proposals, a mechanism offering protection against energy price increases as well as a flexibility mechanism for gas-fueled power plants, the Greek energy ministry has announced.

The price protection mechanism, supported by Greece, Spain and allies, on the matter, represents the continuation of a windfall earnings recovery mechanism in the wholesale electricity market. If triggered, amounts collected through the mechanism would be used to subsidize consumer electricity bills.

This mechanism had been adopted by the European Commission last year, based on a Greek model, before it was applied by member states with some variation.

Also, within the framework of the EU’s capacity availability mechanisms, energy ministers included a provision allowing availability-related fees for gas-fueled power stations if they meet required technical specifications. This provision will enable a flexibility mechanism to be applied.

Brussels: ‘Greece a special case, energy market not liberalized’

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The European Commission has released an interim report on electricity capacity mechanisms in the EU, indicating that although these can reinforce electricity supply security many EU member states need to do more to ensure they are focused and cost-effective measures.

The report also pointed out that badly designed capacity mechanisms can distort competition, affect transboundary power trade, and lead to higher costs for consumers.

Brussels has forwarded a request for all EU member states, agencies, and enterprises in the sector to submit comments to help facilitate the capacity mechanism assessment procedure’s continuation, until the European Commission makes final decisions.

“The report shows that there is a lot of room for member states to improve how they assess whether capacity mechanisms are needed, and how they design them,” remarked Margrethe Vestager, the European Commissioner for Competition. “For a capacity mechanism to be well-designed, it needs to be open and take into account electricity that can be provided across EU borders.”

Vestager described Greece as a special case as the country’s energy market has not yet been liberalized, adding that the situation needs to gradually change.