Capacity market

The opening of markets is a fundamental mission of the European Union which is applicable to the electricity and gas markets.

Contrary to the markets for most goods, they rely on the existence of electricity transport lines and gas pipelines which constitute the infrastructureof the markets in question.

This infrastructure is expensive and for historical – and geographical – reasons, very heterogeneous at the European level and, particularly, between Member States.

Promoting the opening of the electricity and gas markets implies financing costly investments for interconnections.

European policy in this domain must be based on European funds and on the adoption of a scale of priorities in scheduling the implementation of the interconnections.

Any potential initiative in this area will be in addition to the commitment to produce renewable energies which, for the most part, will be in the form of electricity. As a result, 20 to 25% of the electricity consumed in the European Union in 2020 will come from renewable energies. This quantity will be in large part financed by public subsidies provided essentially by the States and the Regions and not by European budgets.

The compulsory injection of electricity produced from renewable sources shifts the value order of other, more conventional energy sources, in particular, those produced with gas.

The fear that renewable energies will potentially not be profitable after 2020 (see last July’s editorial) could lead the European Union to issue another renewable energies production mandate to the Member States beyond 2020.

In this case, conventional electricity sources would have even narrower development prospects. The effect would be all the greater given that the price of gas on international markets could drop considerably following the massive arrival of shale gas (see the April 2012 editorial).

In this event, potential investors in electricity production capacity will only have access to part of the overall market and will not know how or when they will be able to amortise their investments. This is why they are reticent to move ahead.

Faced with this situation, some Member States, feeling that it is their responsibility to ensure a secure national electricity supply, have stated that they are prepared to guarantee amortisation for those who invest.

This approach is known as “capacity market”. It is contrary to the policy of opening the European electricity market. The Commission will likely tackle this subject in its communication on the state of the opening of the energy market which it is planning to publish in October.

Jean-Claude Charrault

Director General