In Germany – however not solely there – there’s a heated debate in regards to the benefits and drawbacks of a capability market. The German Renewable Energy Association is towards it, and lately the German New Energy Industry Association, the DIHK and the EEX vitality change have additionally taken a transparent stance: Germany doesn’t want a “energy plant subsidy program.” In this text, 4 consultants clarify why battery storage may also play an vital position in a capability market and make suggestions on how market design may help keep away from mismanagement, error incentives and pointless prices.
Why a German capability market?
With the German Kraftwerksstrategie, which additionally contains the settlement on a expertise impartial capability market, the German authorities is specializing in guaranteeing a totally renewable electrical energy system. The capability market makes use of long-term contracts for obtainable era capability (paid in €/kW) to make sure that there’s sufficient vitality obtainable at every time of the yr to satisfy demand even in distinctive circumstances. One factor is for certain: with the growing share of renewable vitality and the coal phase-out, controllable turbines and storage programs are wanted to maintain manufacturing and consumption in stability. A lately revealed research by Frontier Economics exhibits that battery storage might cut back the demand for gas-fired energy vegetation in Germany by 9 GW, saving billions in development and working prices for 18 extra energy vegetation and emissions of as much as 6.2 million tons of CO2.
International expertise in Belgium, UK, Poland and Italy
Capacity markets have been efficiently launched in numerous European nations lately. After the UK took the lead in 2014, central capability markets have been carried out in Belgium, Italy, Poland and Ireland. In Spain, a capability market is at present within the legislative course of. In the EU, the Agency for the Cooperation of Energy Regulators (ACER) units the framework for the usage of capability mechanisms, whereas the ultimate determination rests with the Member States and the European Commission.
Therefore the design of capability markets in numerous European nations is topic to an analogous construction: in a central annual public sale, a hard and fast quantity of capability is requested by a government, much like the transmission system operator within the UK and Poland. This capability could be supplied, for instance, by energy vegetation, storage services or by demand response.
The capability markets within the UK and Belgium, for instance, observe this central precept (see desk). In distinction, the French mannequin, the place the capability on demand is purchased in a decentralized method and the place particular person vitality suppliers are obliged to purchase capability certificates from energy vegetation and different electrical energy producers, has not but been in a position to set up itself.
Annual auctions happen 4 years (T-4) or one yr (T-1) earlier than the beginning of the respective contract time period. The time period of capability contracts vary from one yr for present vegetation to fifteen to 17 years for brand spanking new vegetation. This is meant to offer the latter with the mandatory funding safety throughout the financing of the undertaking.
During the time period of the contract, all vegetation will obtain a hard and fast remuneration per megawatt per yr based mostly on the outcomes of the public sale. In return, they have to be obtainable presently and are topic to particular bodily or monetary necessities relying on the construction of the respective market. Emission limits stipulate that coal-fired energy vegetation and different vegetation with excessive CO2 emissions can’t take part in capability markets. It would additionally create incentives for pure fuel energy vegetation to modify to hydrogen.
Key factors of a profitable German capability market
To keep away from the dangers of mismanagement, fallacious incentives and pointless prices, a effectively thought out and environment friendly capability market design is crucial. This, for instance, avoids the chance of so-called windfall earnings that go to energy vegetation that don’t want assist or to energy vegetation which can be artificially stored alive that might in any other case be eradicated from the market.
The expertise from the capability markets already carried out in Europe exhibits that the design of the capability market to be made for Germany should take note of the next vital features to achieve success: first, the derating issuesecond, the administration of plant availability and refinancingand third, the native distribution of taking part vegetation. the contract phrases and public sale horizons in addition to choices for mapping plant harm and, lastly, the selection of public sale format between “pay-as-bid” or “pay-as-cleared” can be vital.
| Description | Great Britain | Ireland | Italy | Poland | Belgium |
| Auction quantity | Annual auctions | Annual auctions | ~Annual auctions | Annual auctions | Annual auctions |
| Time to plan | 4 years (T-4) Main public sale
1 yr (T-1) top-up |
4 years (T-4)
1 yr (T-1) or 2 years (T-2) |
Up to 4 years (T-4) Mother’s public sale
Up to three years (T-3) Adjustment public sale |
5 years (T-5)
1 yr (T-1) Supplementary public sale |
4 years (T-4)
1 yr (T-1) |
| Duration of the contract | 15 years (T-4)
1 yr (T-1) |
10 years (new development T-4)
1 yr (present, T-1 or T-2) |
15 years (new development)
1 yr (present capability) |
17 years (new and low emission)
1 yr (present models) |
15 years (new), 8 years (retrofit), 1 yr (present) |
| Settlement | CM vegetation are paid a clearing value (£/MW) per yr | Plants obtain an annual Premium (£/MW or €/MW) annually | The vegetation obtain an annual Premium (€/MW) annually | The vegetation obtain an annual Premium (€/MW) annually | The vegetation obtain an annual Premium (€/MW) annually |
| Total Auction Capacity | 43.9 GW | 7.2 GW | 65 GW | 7 GW | 1.5 GW |
| Clearing the public sale | Pay-as-obvious | Pay-as-obvious | Pay-as-obvious | Pay-as-obvious | Pay-as-bid |
| BESS Capacity participation of CM | 1.1 GW | 35 MW | 1.1 GW | 1.7 GW | 404 MW |
| First Capacity Auction
First Capacity Auction with the participation of BESS |
Auction 2014; Delivery 2018/2019
Auction 2017; Delivery 2021/2022 |
Auction 2018; Delivery 2022/2023
Auction 2020; Delivery 2024/2025 |
Auction 2019; Delivery 2022/2023
Auction 2020; Delivery 2023/2024 |
Auction 2018; Delivery 2021(obtainable) 2023 (New)
Auction 2022; Delivery 2027 |
Auction 2021; Delivery 2025/2026
Auction 2021; Delivery 2025/2026 |
Derating issue
The derating issue permits for the inclusion of various era choices and suppleness within the capability market. It exhibits what share of the nominal output of a specific expertise is paid within the capability market and thus serves, for instance, to make the contribution of battery storage programs with totally different storage durations to the safety of the system comparable. Depending on the capability and the chosen working mode, a storage system can present a given output for various durations of time (eg 2 hours, 4 hours, 8 hours).
The dedication of derating components ought to be based mostly on how doubtless a specific expertise is to be obtainable throughout essentially the most crucial bottleneck occasions of a yr or quarter. In “mature” or well-established capability markets similar to MISO (Midcontinent Independent System Operator) within the USA, 4-hour batteries have been proven to be as dependable as fuel or coal-fired energy vegetation at 3 % (262 out of 8,760 ). ) are essentially the most crucial bottleneck occasions in a yr, and have a derating issue of greater than 90%. The motive for that is that within the 262 most important bottleneck hours, hardly greater than 4 hours in a row, which provides the batteries time to recharge. In addition, batteries fail much less simply than thermal energy vegetation and have the benefit of availability.
About the authors
John Müller member of the German Green Party and the Committee on Economic Affairs and Innovation and the Committee on Environment, Climate and Energy.
Kilian Leykam is liable for Aquila Clean Energy’s storage investments within the EMEA area and has labored within the renewable vitality sector since 2009. Before becoming a member of Aquila Group in 2020, he was liable for technique and enterprise growth at Vattenfall Energy Trading.
Lennard Wilkening is the co-founder and CEO of Suena, a software-based flexibility buying and selling firm that gives optimization and buying and selling providers for large-scale vitality storage and renewable vitality.
Elena Müller works as Founders Associate & Communications Manager at Suena, the place he focuses on vitality coverage, the vitality transition and the position of vitality storage within the vitality transition.
The views and opinions expressed on this article are these of the writer, and don’t essentially replicate these held by pv journal.
This content material is protected by copyright and is probably not reused. If you wish to cooperate with us and wish to reuse a few of our content material, please contact: [email protected].
Popular content material
