Planned German electricity capacity mechanism under EU scrutiny: European Commission opens in-depth investigation into German plans for capacity reserve
The European Commission has announced on 7 April 2017 that it has opened an in-depth investigation into the German plans to establish a capacity mechanism in the form of an electricity capacity reserve.
The investigation aims to establish whether the German proposal of an electricity capacity mechanism complies with EU state aid rules. Of particular relevance for the assessment are the Guidelines on State aid rules for energye and environmental protection (2014-2020) (so-called EEAG).
The investigation aims to establish whether the German proposal of an electricity capacity mechanism complies with EU state aid rules. Of particular relevance for the assessment are the Guidelines on State aid rules for energye and environmental protection (2014-2020) (so-called EEAG).
This in-depth investigation comes after the adoption, by the Commission of an EU Sector Inquiry, common assessment criteria in the EEAG and a series of decisions on capacity market mechanisms in several EU Member States (UK, France, Germany).
The planned German capacity reserve measure in short
The proposed German capacity reserve measure, called "Kapazitätreserve", will require German network operators to procure around 2 Gigawatt (GW) of capacity per year which will be held in reserve outside the market, for the alledged purpose of security of electricity supply. Although the threat is not imminent, the German authorities deemed the measure necessary in a period of energy transition, and in case of "extreme and unforeseen circumstances", "when all market-based options on the power market are exhausted." Such circumstances will be met where the electricity market does not deliver enough power to meet all demand.
The measure inscribes itself in a broader context of reform of the electricity market in Germany and the adoption of a comprehensive legislative reform in the summer of 2016. One of those legislative reforms concerns capacity reserves, and was adopted in the Act on the Further Development of the Electricity Market (Strömmarkgesetz) of 26 August 2016, amending the German Energy Industry Act (Energiewirtschaftsgesetz). Germany is now in the process of adopting a Regulation on capacity reserve (Kapazitätsreserveverordnung) which is at a draft stage. The draft regulation has been published by the Federal Ministry for Economic Affairs and Energy. The German TSOs will play a central role in the operation of the capacity reserve, but also for the drafting of standard terms to be approved by the Ministry. As the measure is deemed to involve state resources, it had to be notified before adoption to the European Commission.
Main allegations
While the Commission recognises the legitimate interest of Germany in ensuring its security of electricity supply, it is expressing concerns on three points:
The proposed German capacity reserve measure, called "Kapazitätreserve", will require German network operators to procure around 2 Gigawatt (GW) of capacity per year which will be held in reserve outside the market, for the alledged purpose of security of electricity supply. Although the threat is not imminent, the German authorities deemed the measure necessary in a period of energy transition, and in case of "extreme and unforeseen circumstances", "when all market-based options on the power market are exhausted." Such circumstances will be met where the electricity market does not deliver enough power to meet all demand.
The measure inscribes itself in a broader context of reform of the electricity market in Germany and the adoption of a comprehensive legislative reform in the summer of 2016. One of those legislative reforms concerns capacity reserves, and was adopted in the Act on the Further Development of the Electricity Market (Strömmarkgesetz) of 26 August 2016, amending the German Energy Industry Act (Energiewirtschaftsgesetz). Germany is now in the process of adopting a Regulation on capacity reserve (Kapazitätsreserveverordnung) which is at a draft stage. The draft regulation has been published by the Federal Ministry for Economic Affairs and Energy. The German TSOs will play a central role in the operation of the capacity reserve, but also for the drafting of standard terms to be approved by the Ministry. As the measure is deemed to involve state resources, it had to be notified before adoption to the European Commission.
Main allegations
While the Commission recognises the legitimate interest of Germany in ensuring its security of electricity supply, it is expressing concerns on three points:
- the real need for security of energy supply measures in Germany. The Commission will assess whether other measures, less costly and less distortive of competition, could be implemented;
- the possible distortions of the mechanism on competition. Although the German capacity reserve shall operate through public tender, a particular concern for the Commission is the possible favourable treatment given to power plant operators over demand response operators. Based on the announced criteria for participating to the capacity reserve, the Commission suspects that they are not sufficiently open to demand response operators. In addition, and even more surprising after the previous decisions reached by the Commission on other capacity mechanisms (UK, France), the proposed mechanism excludes the participation of foreign capacity.
- the duration of the measure. The scheme is supposed to start in the Winter 2018/2019 for an initial period of 2 years, but could be renewed and extended. The Commission is concerned that "even if Germany's assessment were to be confirmed that the reserve is needed today, the measure could continue to exist even when it will no longer be necessary."
It should be noted that the European Commission has already approved - temporarily - two security of supply measures for the German electricity market:
- decision of 24 October 2016 on the demand response scheme ABLAV (SA.43735);
- decision of 20 December 2016 on network reserve (SA.42955).
The process ahead
By opening an in-depth investigation, the Commission gives both German authorities and third parties the opportunity to provide comments on the proposed German measure.
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