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06.06.2016
The Electricity Market in Europe is Not Working
Mr. Hans ten Berge, Secretary General of EURELECTRIC
AUTHOR: publics.bg

Mr. ten Berge, we had an interview with you a long time ago – in May 2009, and again, more recently, two years ago in Sofia. According to you, what has changed in Bulgaria during this period and what are the issues that are still pending?

 

I am very pleased with the significant changes in the Bulgarian energy sector in the last couple of years. There has been notable improvement in energy market regulation and legislation, an independent power exchange has been set up and important gas interconnection projects are going ahead. You are coping well with the legacies of the past and there seems to be a more constructive environment in the country than the one I met two years ago and in 2009. Therefore, I am very positive about the future.

Clearly, there is still much that can be improved but developments are moving in the right direction. It is important to press ahead with reforms and also cooperate at regional level with countries in the South East region.

What outcomes do you expect from the regulatory forum, held in Sofia on April 7-8 this year?

The role of energy regulators in the market liberalisation process is very important. Hence this high-level event is a key forum in which to engage in open dialogue and get a better understanding of the regulatory challenges at stake. Only once this is understood, and the regulatory gaps identified, can we work towards the harmonisation of the regulatory framework.  

Cooperation between national regulators is important. The forum gathered 14 regulators from the region, which represents roughly half of the EU. If regulators continue to work this way and come together and exchange experiences and knowledge, I am convinced that progress will be seen very quickly. There is no need to “re-invent” the wheel. Regional integration is the first step towards the common European goal of a single energy market.

What are the most pressing issues for the European energy sector and what role will EURELECTRIC play in offering solutions? You said during the first day of the conference in Sofia, that the market in Europe is not working.

You are right, I said that. Currently, we are in a transition towards a decarbonised market and the energy mix is leaning increasingly towards wind, sun, hydro, renewables, nuclear, which are all carbon-free. All these generators produce electricity at marginal costs which are close to zero. This means that we will see the market price going consistently down to a level that nobody will be able to invest anymore.

As a result, governments have found ways around the market to invest. These mechanisms are covering on average 50% of generation, and in some EU countries – up to 67% of the generation. If you invest in a hybrid system – partly market and partly government intervention in renewables and capacity payments – and all kinds of other temporary support schemes – then you will not have a correct competitive market anymore because some of the money is going around the market. This system will not work and EURELECTRIC is pleading to take out all government interventions currently reflected on the electricity bill. This will allow for a competitive market for capacities and flexibility with the respective market prices: wholesale price, capacity price, and flexibility price, creating a much needed competitive environment again. This is not only needed in the current centralised resource side, but also in the future, when we will see more decentralised generation and storage.

If you want to compete with your own solar generation, which has a competitive kilowatt-hour price – but no real capacity value because the sun is not shining during the night and there is limited flexibility therefore – then you can compete with a solar panel on the energy (kilowatt-hour) market. It will be less instrumental on the flexibility market and hardly instrumental on the capacity market.

On the contrary, a stand-by gas-fired plant has a kilowatt-hour price that is less competitive, but it is more relevant for the capacity market because of its “stand-by” function. Therefore, it can deliver more flexibility even if the kilowatt-hours when it generates electricity are very limited.

EURELECTRIC is proposing to go in this direction for the new energy market model. There should be a value for kwh, flexibility and availability/capacity. We think that this is needed in the short-term in order to get the competitive environment working again.

There is a new book by Leigh Hancher et al. – “Capacity Mechanisms in the EU Energy Market”, which shows that there is a big diversity of capacity markets in the European national markets. Do you see them converging into a single European capacity market in the future?

There is a mixture of Member States with and without capacity markets. France, for instance, has a capacity market where retailers must contract enough firm capacity to meet demand; in the UK, on the other hand, capacity is offered via competitive auctions to meet the set level of firm capacity. This unharmonised approach hampers the functioning of the European market.

Consistency could be achieved through interconnectors, which would help in contracting capacity from other countries. This would keep at least some interaction between countries and balancing between the prices and costs. We are looking very strongly in this direction – towards one system, but it cannot be achieved tomorrow. Member States are not ready for a single European system. We will call for it, but it cannot be achieved overnight.

Do you expect a major change in EU energy policy as a result of the COP21 meeting in Paris?

When the EU announced its decarbonisation objective of at least 40% reduction of greenhouse gas emissions by 2030, which means 43% for the power sector in the EU ETS system, we gambled on the outcome of the Paris Conference.

I expect that the 43% will stay as it is for the moment and that it will be achieved and properly implemented. I also expect that this target will remain applicable to the industrial sectors up to 2030. There is significant opposition currently from the steel, aluminium and cement industries, who are claiming that other parts of the world are not moving fast enough and that Europe should therefore not be too ambitious.

We see also that sectors not under the EU ETS – transport, heating and cooling – are not moving at the same pace. To achieve the overall 40% target for 2030, the ETS sectors have to cut emissions by 43%, while the non-ETS sectors would need to cut emissions by 30%.

For the next decades, we need to look not only at supply side emissions but also at the retail side and see what can be done in terms of decarbonizing heating, cooling, and transport. It is not enough to have electric cars from Tesla – even if they produce hundreds of thousands. We would like to see a Europe with clearer ambitions on the electrification of transport, which also improves air quality and noise pollution in cities. We would like to see more efforts being done for the electrification of heating and cooling through heat pumps. This is a guaranteed way of reducing greenhouse gas emissions in these areas.

However, achieving these objectives is a long and difficult process which requires political direction as well as changes in our habits and ways of living.

After COP-21, what is the opportunity for nuclear? Can we expect some support for it?

I would not be in favour of support per se other than for the three elements: capacity, flexibility, and kilowatt-hours. Nuclear has an excellent capacity factor, it has limited flexibility and a low kilowatt-hour price. If we want this new market structure I talked about earlier, we will see that nuclear has a chance in it, which is much better than now.

But would nuclear be competitive? That depends on the flexibility of the customers. If we don’t need backup capacity from nuclear, because customers are ready to charge their cars and adapt their heating and cooling systems to the availability of sun, then it will be difficult for nuclear. If we need a backup system, because customers want to drive, heat, and cool at any given moment, even if the sun is not shining and we don’t have storage, then we will need nuclear.

Questions by Atanas Georgiev

This interview is also published in Bulgarian in the June issue of Utilities magazine.

BIO INFO

Born in Eindhoven in 1951, Dutch citizen Hans ten Berge holds a degree in Chemistry from the Rijksuniversiteit in Utrecht and also graduated from the University of Delft in business administration. Following posts in a number of international enterprises, including Exxon Chemie and Kemira Agro, he joined ENECO Energie in November 1998 as Managing Director of Energiehandelsbedrijf, subsequently serving as a member of the ENECO Energie Board of Management from November 1999 until January 2006. He served for several years as Chairman of the EURELECTRIC Markets Committee, before taking on the full-time post of Secretary-General in 2007.

 


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