Date 25. september 2014
Location ENTSO-E, Avenue de Cortenbergh 100, Bruxelles-Belgien
Participants
Anders Christian Nordstrøm Dong Energy A/S
Ask Møller Nielsen Vestas Wind Systems A/S
Charlotte Søndergren
Christian Dahl Winther
Gert Lehmann
HOFOR
Dansk Energi
Dansk Elhandel
Hans Erik Kristoffersen
Hans Martens
Henrik Hansen
Håkan Feuk
Energinet.dk
Fipra
Nord Pool Spot
Eurelectric
Inge Bernaerts
Jan-Willem Lenders
John Tang
Klaus Thostrup
Kristin Munthe
Lars Aagaard
European Commission
BDEW
Dansk Fjernvarme
Energinet.dk
Statnett
Dansk Energi
Lasse Sundahl
Lauge Rasmussen
Laura Hviid Arildsbo
Dong Energy A/S
Konkurrence- og Forbrugerstyrelsen
Udenrigsministeriet
Lise Weiss Energistyrelsen
Martin Risum Bøndergaard Vindmølleindustrien
Martin Schrøder Energinet.dk
Mette Vingaard
Mogens Holm
Morten Sommer
Niclas Næstoft
Energistyrelsen
Quartz+Co
Energinet.dk
Quartz+Co
Peter Christian Olesen
Peter Thomsen
Stephan Krieger
Stuart Noble
Søren Dupont Kristensen
Thomas Veyrenc
Troels Ranis
Ulrik Stridbæk
Energitilsynet
Dong Energy A/S
BDEW
ScottishPower/Iberdrola
Energinet.dk
RTE
DI - Dansk Industri
Dong Energy A/S
6. oktober 2014
MSO/
Dok. 14/04548-55 1/7

1.
Welcome and introduction to the Danish market development project
/ Søren
Dupont Kristensen, Energinet.dk
Main messages:
 Energinet.dk is happy to present an ambitious seminar programme with high-level speakers from across Europe.
 The aim of the seminar is to gain long term perspectives on the: o European energy market integration. o Scope for national market solutions to ensure security of supply. o Status and/or lessons learned from France, the UK and
Germany on individual market solutions. o Dependencies between countries in relation to market design choices and timing and the possibilities for a bilateral/regionalsolutions.
 The development of the European electricity sector is currently shaped by two potentially clashing forces; 1) the completion of the internal energy market and 2) national policies to maintain current levels of security of supply.
 Member states are increasingly turning to national generation adequacy solutions and capacity markets or strategic reserves are on the rise.
 As no single European mechanism is likely to develop these solutions should be regionally compatible and minimize market distortion.
2.
European perspectives on the development of the internal energy market towards 2030 – focus on capacity remuneration mechanisms and state aid guidelines / Inge Bernaerts, European Commission
Main messages:
 The focus for EC is to develop wholesale markets further in all countries, establish interconnectors and activate the demand side by further integration of B2B and B2C consumers in markets
 The target model needs to be reviewed and complemented especially in relation to energy efficiency and supply security.
 The spectrum for solutions is broad and energy-only markets potentially need to be complemented by either capacity mechanisms or new or larger reserve markets.
Questions:
 Are we already locked-in from the different national solutions? o Different level of challenges in each county is driving the solution. Major challenges - as in FR and UK - leads to capacity mechanisms, but are also driven by a disbelief that market integration will solve national problem.
 Do we actually have an energy-only market today? o We do not have a ideal text book market today. ENTSO-
E/TSOs should be much more ambitious in establishing common network codes to remove market inefficiencies.
 Are there currently enough incentives for the market to ensure
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generation adequacy? o Not necessarily, but the EC and others should explain the costs of national solutions compared to regional solutions and recognise that regional solutions are needed in some areas.
3.
Current development of the internal market in the eyes of the
TSOs – are CRMs endangering the target model? / Kristin Munthe,
Statnett
Main messages:
 In short: Capacity Remuneration Mechanisms are endangering the target model as prices and volatility will decrease. But there is no proof that the market will provide sufficient investments in the long run.
 ENTSOE therefore recommends the following short term improvements to the current market design: o All RES should be fully integrated into the market o Balancing prices should be reflective of full system costs o Demand Side should participate as much as possible in all markets
 Furthermore high prices must be accepted by TSOs and politicians to incentivize producers to deliver flexibility.
 CRMs are a risk to interconnector establishment as the value of interconnector will fall dramatically if CRMs are introduced. This will have a negative impact on European integration.
 To mitigate this risk CRMs should have a regional aspect by covering interconnector capacity.
4.
Can the internal energy market ensure generation adequacy without CRMs? / Hans Martens, Independent Adviser
Main messages:
 The real challenge is related to security policy: We should trust each other instead of relying on Russia and the Middle East. This is why Europe needs a fully integrated internal energy market with a strong legal and political framework.
 In recent years Europe has moved from a focus on climate policy and renewable energy to security of supply.
 The energy-only market and sufficient interconnector capacity can handle security of supply cost-effectively, but barriers to demand side response must be reduced and long-term stability increased to promote investments.
5.
Morning round table – Developing European level consensus on generation adequacy and future electricity market designs?
Questions:
 What should we do in the short run? o Kristin Munthe: We should recognise that there are short term challenges together with the industry.
 What are the incentives for TSOs to do what is best for the market and EU? o Søren Dupont Kristensen: TSOshave diverse incetives due to different types of ownership as well as different
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and complex regulation. There is a need to converge faster on network codes and to ensure that regional socio-economic effects are considered in interconnector investments.
 What can TSO do to increase confidence for investors and pro-
ducers? o Kristin Munthe: Projects like the Danish market model project will increase the likelihood of a good long term solution.
 How should a future solution take into account cost developments as well as future growth? o Hans Martens: No politician will make the economic reforms to boost European growth. The energy sector should expect low prices going forward due limited growth in consumption.
6.
Status of the current policy process in Germany – CRMs and RES support / Stephan Krieger, BDEW
Main messages:
 Due to changes in the German capacity mix the future will bring risks of over feed-in combined with situations with insufficient
RES production. This can partly be solved through a combination of DSR, flexibility etc, but a generation fleet will still be needed, and it is not sufficient to depend only on infrequent price spikes to create investment signals.
 BDEW has long advocated the energy-only market, but are now convinced that it should be supplemented by a decentralized capacity market based on certificates. The certificates will reduce volatility and creates investor certainty.
 In a decentralized capacity market parties issuing certificates are obliged to produce an equal amount in times of shortage. Shortage time can be tricky to define, but could be at prices above 300
EUR. If certificate issuers cannot produce they should be subjet to a penalty of up to four times the capacity price.
 Cross-border effects should be tackled but capacity reservation on interconnectors is not a proper tool to address this issue.
BDEW suggests Germany-France pilot project to ensure crossborder participation.
 Implementation of a decentralized capacity market is not currently urgent in Germany, but as the process can take up to 4-5 years, it is important to enact BDEWs proposal now although it would not yet have effect.
 As long as there is sufficient spare capacity, certificates would be almost free, and there is as such no risk of too early implementation or over compensation.
7.
British experiences with a centralised capacity market / Stuart
Noble, ScottishPower/Iberdrola
Main messages:
 Many different capacity remunerations models have been considered in the UK:
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o Capacity Auctions o Strategic Reserves o Reliability Options o Capacity Payments o Capacity Obligations
 These models differ in the extent to which they are targeted or market wide, whether they are central or decentral and whether they volume or price fixed.
 Within each model pros and cons on investability, robustness, penalties etc can be considered throughout the design process
 Avoiding complexity is not easy and even simple designs may be considered imprecise. The UK regulation has become very complex and spans over 520 pages.

8.
French experiences with a decentralised capacity market /
Thomas Veyrenc, RTE
Main messages:
 There is a long lead time on capacity markets. The French capacity market law was approved in 2010 and implemented only by
2019.
 CRMs are shaped by different TSOs views and varying stakeholder interests. In France nuclear phase out and increasing peaks is a major challenge.
 The initial pressure to implement a CRM came from demand side response actors and focus has been to setup a capacity wide mechanism with low impact on end-consumer prices.
 France is the only market in Europe in which demand side response can participate in all markets. 8 independent DSR operators are active in France and now rules will be adapted to facilitate aggregation.
 The French model is not systematically addressing the missing money problem – will not lead to new investment cycle in CCGT.
It does not try to overcompensate but to allow for DSR.
 The French model could provide for differentiated levels of security of supply for suppliers. Suppliers are free to buy certificates or to contract for DSR instead.
9.
Potential for cross-border participation in national CRMs – is Eu- rope on the right track? / Håkan Feuk, Eurelectric
Main messages:
 Eurelectric proposes a range of adjustments to the electricity target model to accommodate flexibility and generation adequacy - capacity mechanisms is only one of many initiatives.
 An energy-only market 2.0 will not materialise, but this is not to say that CRMs should be all encompassing - they should only address generation adequacy.
 Four different models for the cross-border CRMs differentiated on two dimensions by availability/delivery and capacity provider/interconnector are envisaged as potential solutions by Eurelectric.
 Eurelectric sees huge cost saving potential and consumer benefit
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by cross-border participation. However, trust between member states is a prerequisite for cross-border participation and generation scarcity should not lead to TSOs/member states protecting their own area only.
 No reservation of cross-border capacity should be necessary as long as capacity can be priced.
10.
Afternoon round table - Regional dynamics and dependencies in market solutions emerging currently – what are the potentials for cross -border cooperation?
Questions:
 Is Security of Supply a public or a private good? o Stephan Krieger and Thomas Veyrenc: It is currently a public good, but as soon as the individual level can be defined it will be a private good. o Stuart Noble: If it is a public good – and there is a missing money issue – TSOs must ensure that these money are brought aboard.
 How would TSO cooperation work in a regional model? o Håkan Feuk: On generation adequacy it has worked for years, but TSOs face a political pressure to ensure supply in their own control area first, so in times of scarcity
TSOs care about themselves. That makes it difficult to find trust.
 Is the BDEW solution on a realistic option for Germany? o The geographic proximity makes it natural to go in direction of compatibility with France as we do with the decentralised model. The German government will publish a green book in November depicting the different options, to be followed by a white book medio 2015. The white book gives politicians a basis for deciding on a German model.
 What do we mean by relying on our neighbours – can we rely on
German nuclear, Norwegian hydro etc? o Thomas Veyrenc: It is necessary to look at the real life implications of the theoretical models. Member states are starting to look at what neighbours do, which is an improvement as we are currently relying on neighbours blindly. When member states start paying for capacity abroad there will be demand for proofs that this additional security of supply is being delivered. o Stephan Krieger: The internal energy market forces us to rely on neighbouring countries, so we do it already.
Cross-border participation can increase cost efficiency as temperature effects, varying consumptions patters etc. are levelled out.
 Who will pay for the CRMs? If it is financed flat rate from the tariff CHPs would pay for their own capacity payments. o Håkan Feuk: In that case CHPs could earn income from
DSR as well.
 The Danish solution so far has been to build interconnector ca-
Dok. 14/04548-55 6/7

pacity. Has there been any discussions in your countries on whether building interconnectors is will be sufficient? o Thomas Veyrenc: Interconnectors are important for the integration of the markets and RTE does not want to tamper with the target model after years of preparing its implementation. However, behind the curtain there is always the issue of what will happen when we have the same stress situation and will have to do load interruptions. o Stephan Krieger: It is necessary to understand that everyone will have to move to the same defined level of SoS.
 The cross-border dependencies are there and cannot be avoided after the market coupling. You have to hope that your neighbours will do the same – we have to find a common solution to benefit from being neighbours. Can we do a step-by–step process to make solutions compatible? o Thomas Veyrenc: If 28 member states have to agree on common solution it will never happen. We should do regional solutions first, and move on to European harmonization on a later stage. Regional or bilateral solutions are the first step.
11.
Wrap-up and conclusions / Søren Dupont Kristensen, Ener- ginet.dk
 A strong European harmonization of capacity remuneration mechanisms cannot be foreseen in the near future.
 Various national models are being developed and implemented – some with potential for regional cooperation and cross-border participation. In order to handle the short-term challenges sufficiently, we should strive to: o
o
 In discussing Danish improvements of the market design it is important to keep in mind that many countries across Europe are facing the same challenges and that we should aim at mutually compatible solutions.
 Finally, European security of supply should also be increased by taking into account regional social-economic effect of interconnector expansions.
(http://www.energinet.dk/markedsmodel).
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