2015 - Elia answer to CREG consultation

Context

Elia has contributed constructively to the public consultation of the CREG by completing the questionnaire on measures to be taken to ensure the adequacy of conventional means of electricity generation in Belgium. Elia is making this extensive contribution public and transparent for all interested parties. The attached note was drawn up in accordance with the structure of the CREG questionnaire. The key messages of this contribution are briefly explained below.

A properly functioning energy market is crucial, regardless of whether it is supplemented with a strategic reserves mechanism or another capacity mechanism. A number of improvements to the current market design could involve the better integration of renewable energy (incl. offshore wind), creating more liquidity on the intraday markets, the creation of quarter products and a review of the caps on the wholesale prices.

In the context of possible changes to the strategic reserves mechanism, Elia maintains that there are currently two fundamental design characteristics that must be retained to ensure that the market has the necessary incentives for appropriate behaviour. These are:

• only releasing the strategic reserves onto the market if the Belpex Day ahead price is equal to EUR 3,000/MWh and not all demand can be met that was prepared to pay this price;
• the increase of the imbalance price to EUR 4,500/MWh in case strategic reserves are activated in the event of a structural deficit.

Whereby the signals via the imbalance prices seem to function properly, it should be noted that the first aspect implies that price peaks are inherent in the functioning of an ‘energy-only’ market. However, the social acceptability of a possible increased frequency of price peaks must first be discussed (particularly since the likelihood of this has grown with more power stations off the market). This is in particular fundamental for the choices to be made regarding the improved functioning of the ‘energy-only’ market in combination with the strategic reserves mechanism, or the installation of a new capacity mechanism.

Should it be decided to consider discussing and implementing a new capacity mechanism in Belgium, then based on its role as a market facilitator Elia has already reflected on the characteristics of such a mechanism. First of all the goals must be clear, i.c. the long-term guaranteeing of an adequate security of supply. A necessary condition of this is a credible and sustainable framework for market stakeholders and investors which on the one hand should allow new capacity to be attracted and on the other existing capacity to be returned ‘to the market’ (cf. temporarily closed generation units).

The design characteristics of a capacity market in Belgium are obviously dependent on the desired objectives and must take account of the particularities of the Belgian system. In that regard, the most suitable players must also be retained for the new roles and responsibilities such a mechanism will involve. In the attached contribution, Elia makes a number of proposals concerning the characteristics of a capacity mechanism for Belgium, specifically: market-based, open to all capacity to the extent that it contributes to the security of supply, technology-neutral, volume-based, taking account of different time horizons, centralised auctions, valued based on availability and taking into account contributions from abroad.

Finally, Elia emphasises that such an evolution is a fundamental change in the energy market and that development and implementation will take time. This is therefore by no means a measure that will contribute towards security of supply in the very short term.