Press comment from the Polish Electricity Association on the voting of amendments to the Regulation on the internal electricity market in the ITRE Committee  

Electricity market - are we heading in the right direction?

The revision of the Electricity Market Regulation should set clear rules to ensure a competitive, flexible, technology-neutral and end-user oriented market. In the absence of price incentives for investment and the associated risks of capacity shortage, Europe's electricity markets are currently facing the risk of end-user supply disruptions. The recent decision of the European Commission to approve new capacity mechanisms for 6 Member States (Belgium, France, Germany, Greece, Italy and Poland) proves that capacity mechanisms play a significant - and with time increasing - role in ensuring security of supply and in the process of transformation of energy markets.

According to PKEE, today's vote of the ITRE Commission introduces double standards for power mechanisms and violates the hitherto recognised principles of ensuring regulatory predictability for investors. The CO2 emission standards proposed for the so-called strategic reserves allow for the participation of coal units in the system, while eliminating the possibility of their support under the power market. The Polish Electricity Association is convinced that all capacity mechanisms should be treated on an equal footing to ensure fair market conditions.

All power mechanisms should provide investors with predictability over the long term. Examples from a number of Member States where these mechanisms have already been introduced point to their essential role in ensuring security of supply across the European Union. The European Commission's decision of 7 February 2018. on 7 February 2018 on notification of new capacity mechanisms in six Member States, issued after an in-depth analysis, proves the above thesis. Unfortunately, the ITRE Commission's position today proposes to limit the application of the power market to a maximum period of 5 years and to shorten the power contracts to a maximum period of 1 year. Such a short time period is not sufficient to provide the necessary incentives for the construction of new generation units. By contrast, the capacity markets recently adopted by the Commission introduce support lasting at least 10 years, which is more adequate for investors.

Double standards for power mechanisms regarding the 550 g CO2/kWh emission limit According to PKEE, today's ITRE Commission report grants certain privileges to one of the power mechanisms - strategic reserves - while the other solution - power markets - was deprived of them.
In the case of the more market-based and technology-neutral mechanism, i.e. the power market, stricter emission standards were adopted - 550 g CO2/kWh. In the case of the second solution, a separate, dedicated emission cap was adopted - 200 kg CO2/kW on an annual basis, not per production unit. The proposed limit will allow the use of lignite and hard coal units as strategic reserves, while eliminating such a possibility in capacity markets.

The proposed solution therefore contributes to support a non-marketable and less technology-neutral solution, which is controversial.

Changing the rules in the course of investment activities will not lead to improved security of supply in Europe Under the capacity mechanism rules proposed by the ITRE Commission, the EPS550 emission standard will be directly applicable to new units and will deprive highly advanced current investments in new capacity of the possibility of receiving support from capacity mechanisms. According to PKEE, this would negatively impact the security of energy supply in Poland and other countries, as without support, conventional units will not be economically viable.

Strategic reserves more costly for consumers than capacity mechanisms The Polish Electricity Committee finds highly surprising the position of the ITRE Commission, which privileges more economically costly solutions from the perspective of consumers, such as strategic reserves (as presented in an in-depth study prepared by Compass-Lexecon for PKEE). It is also worth noting that, according to research, the EPS 550 standard will have a negligible impact on reducing carbon emissions, due to the parallel increase in CO2 emissions in other sectors.
According to PKEE, today's vote in the ITRE Committee sets double standards for EU Member States and market participants.