Berlin (energate) - The EU Commission has announced that it will present a draft law on the reform of the EU electricity market reform for mid-March. In a policy paper, the energy company Vattenfall has now published its concrete proposals for reform. In the fight against the energy crisis, the company is calling for long-term investment security, less market intervention and priority for renewable energies in the markets.
"Our ideas are therefore aimed at developing the EU electricity market in an investment-friendly way," says Frank van Doorn, head of Vattenfal's trading division, summarising the five key points of the paper. In his view, the energy crisis is not caused by a poorly functioning electricity market, but by a large gap between energy supply and demand. According to Vattenfall, the design of the electricity market in the fossil-free era requires an intelligent mix of flexible and fossil-free generation capacity, "flanked by storage solutions and flexible demand". In contrast to the alleged supply gaps, electricity demand is rarely the focus of analysis. However, as the share of renewables in the electricity system increases, price volatility will become more extreme. It is therefore crucial that the expansion of renewables goes hand in hand with an increase in flexibility.
For industrial companies, so-called demand-side flexibility could mean that they adapt their production processes not only to their operational plans, but also to the electricity supply available at any given time, the Vattenfall paper continues. It says that household appliances could also be "demand-optimised" and that the planned introduction of smart meters will provide the necessary incentives.
CfDs as a revenue stabiliser
The forecast price development is an extremely relevant factor in the decisions of an electricity company, Vattenfall continues. Electricity producers have several options to hedge against market, liquidity and credit risks when selling their electricity. These include exchange trading, long-term PPAs and participation in government tenders (Contracts for Difference, CfD). Properly designed, CfDs can stabilise revenues, make investments more predictable and offer generators a reasonable expected return. But a rigid system of government-driven CfD auctions would stifle the necessary innovation, the group argues. Indeed, exclusive reliance on such auctions will never be a major driver of innovation. CfDs should therefore be voluntary and combined with the possibility of commercial investment, Vattenfall argues.
Each instrument has advantages and disadvantages
"Each of the electricity marketing instruments has different advantages and disadvantages for energy producers - but together they have the property of optimally balancing credit risks, liquidity risks and market risks," van Doorn concludes. Properly designed, government CfDs, for example, could provide predictable revenues but stifle innovation. Long-term contracts, on the other hand, are often associated with significant credit default risks. "In this case, the state could use credit guarantees to ensure that direct energy supply contracts become more attractive," says Vattenfall's head of trading. /am
