Power Trader Group Uses Forum to Push Market Principles

The European Federation of Energy Traders is using the Florence Forum June 13-14 to present a discussion paper on the need to let power markets work normally, so that 'real' prices can generate investment signals.

The two-day event brings together European Commission policy makers, traders, network operators and other stakeholders to discuss developments, as the EC is this year working on a new design for the power market. But some countries have a different approach to energy, with some being protectionist or not trusting in the market's ability to provide.

So far, much integration and liberalisation has been achieved, but there are some obstacles, and the market has been mistakenly sidelined in many European countries, Efet believes, producing unrealistic prices. Therefore it is trying to bring it back to the centre of discussion.

It believes governments have been too quick to intervene in the supply side, resorting to capacity mechanisms, as these are “easy”, rather than remove subsidies on renewables or make them operate in the same unprivileged conditions as other generators have to. But capacity mechanisms are themselves distortive: if you reward plants for being there, you are taking money from somewhere else – that is, the market, Jerome le Page, Efet’s manager for electricity markets, told NGE in an interview June 13.

And they create uncertainty in neighbouring countries. National energy policies may be down to governments to decide but they should be discussed between member states at a regional level, he said, so that well-connected countries such as Belgium – recently criticised by the International Energy Agency for not having a national energy policy – can choose between a mix of options, including demand-side management, network investment to import electricity and newbuild power-generation.

There has not been a proper study of what plants might have been built in which countries, had there not been such a mechanism in place there; or of the adequacy of the existing capacity in a given country. “If there is a black-out, it will be the energy minister in the hot-seat,” he said, explaining governments' haste to intervene in the situation; “but a capacity mechanism should be the last thing you think about.” Patching things up with out-of-market mechanisms only made things worse, he said.

The EC is working on a new design for the power market, having consulted on it last year. European gas industry groups had expected gas to take a bigger percentage of the fuel mix than it has so far, not foreseeing the low price of carbon, making coal competitive; or the extent of public support for subsidising renewable energy. Gas is succeeding in the UK's power sector, but that is because the government there has jacked up the carbon price as set by the emissions trading scheme, so that it actually achieves its goal of making coal uncompetitive against gas.

William Powell