Montel Magazine 4 2021 - Nordic power spat - Page 21

“ Energy-only markets will not provide firm capacity , so they will not provide security of supplies ”
Sunny Sunday afternoons in summer – and windy periods at other times of low consumption – have long tended to send German power prices below zero as the system struggles to balance supply with demand . Anticipating problems ahead , the coalition plans to amend the design of the country ’ s power market to make it fit for a system centred around technologies with next to no operating costs and output that fluctuates with the weather . It aims to make concrete proposals next year but has already flagged an interest in subsidising the retention of thermal power plants for backup purposes . This would mark a break from the previous administration ’ s commitment to a so-called energy-only market that only rewards producers for the power they sell .
Critics have long argued the prevailing model lacks incentives to keep sufficient power plants operational . “ Energy-only markets will not provide firm capacity , so they will not provide security of supplies ,” says Marcus Krebber , head of RWE , Germany ’ s biggest power producer . “ Security of supply needs to be organised by a state remuneration framework .” Utilities are likely to get some form of capacity market but haggling over the conditions that will be attached to it spells up to three years of uncertainty over the future viability of thermal power plants , says Aurora ’ s Hanns Koenig . “ That is one of the somewhat disappointing aspects of the coalition agreement – that we don ’ t get more clarity .” This in turn is likely to push back the arrival of gas-fired power plants to replace a gap in secure supply left by timelines to phase out coal and nuclear energy .
The future of natural gas in Germany remains murky . For the time being , the coalition recognises the fuel as an “ indispensable ” source of secure energy . The coalition aims to roll out gas-fired power plants on a massive scale to back up renewables . The government will pull forward a coal exit review to next year to help it decide what and when to build . RWE ’ s Krebber says Germany may need anywhere between 20-40 GW of new installations this decade . Yet he also expects them to clock fewer and fewer operating hours , making them an unattractive investment absent subsidies . By 2035 , he sees their fuel likely supplanted entirely by hydrogen . Experts deem hydrogen critical for decarbonising some industries like steel and chemicals that presently have no other alternatives to feedstocks like coking coal or natural gas . It also looks set to be the only long-term source of flexible energy storage that could be used in gas-fired power plants to back up renewable energy when the weather is unfavourable . For now , the coalition says new gas plants ought to be located on the sites of old power stations and must be “ hydrogen-ready ” in line with a goal to abandon all fossil fuels by 2045 .
This date leaves open the fate of a subject noticeably absent from the new government ’ s plans : Nord Stream 2 . The coalition parties made no mention in their deal of Russia ’ s contested gas pipeline to Germany . The Greens have objected to the connection in the past . They will control the energy ministry that oversees the regulatory agency tasked with certifying whether the project complies with European law . The new administration is unlikely to block the project by reopening the ministry ’ s assessment procedure , says Katja Yafimava , senior research fellow with the Oxford Institute for Energy Studies ( See p . 26 ). But it is more likely to guide Germany towards greater cooperation with critics of the pipeline in Brussels , Warsaw and Washington , she adds . They want to extract greater certainty of continued Russian flows via existing eastern European networks in exchange for accepting that the connection – owned by Russian energy giant Gazprom – meets European competition rules intended to keep suppliers separate from the networks they use . “ Germany is clearly caught between a rock and a hard place , but as it wants and needs this pipeline , certification will be completed and the gas will flow eventually ,” Yafimava says . “ But it will have to navigate this process very carefully .” n
Montel Magazine 4 – 2021