Energy Lab | New shape of energy market



The technical and political aspects of this challenge were the topic of the Energy Lab cycle "New shape of the energy market" debate organised by the Forum Energii and WysokieNapię 


The debate was attended by: Jean Arnold Vinois (Advisor to the Jacques Delors Institute, Honorary Director of the European Commission's Directorate-General for Energy), Matt Hinde (FleishmanHillard, former Head of EU Strategy in the British Department of Energy and Climate Change (DECC), Joanna Maćkowiak-Pandera (Forum Energii), Tomasz Sikorski - Vice-President of the PSE and Paweł Ryglewicz from the Ministry of Foreign Affairs.

At the end of the year, the European Commission is to present the Winter Package - draft directives creating a new EU energy market, which is to be a part of a larger energy union project. It is known that the future market is to enable the free flow of electricity and gas, an increase in the share of 'green' energy, the promotion of new technologies or the widespread digitisation of energy.

In setting the direction for the energy sector towards a low-emissions economy, the Commission is primarily concerned with optimising resources and infrastructure in the EU. - I believe that rational sharing of resources in this way is part of the wider idea of a common Europe," said Jean-Arnold Vinois, former head of DG Energy at the European Commission, currently at the Jacques Delors Institute. This is a holistic view of the whole sector - from resources and manufacturing to the end user - he said.

In his opinion, it is not about increasing energy consumption, but about intelligently shaping demand and supply. In many countries it has already succeeded, but in the case of Poland it will be a greater challenge than elsewhere - noted Vinois. The scale of the challenge is greater where energy policy is focused on a single technology. - He added. For example, in Poland it is coal, and in France it is an atom, he explained.

In the opinion of PSE Vice-President Tomasz Sikorski, two main areas of market integration problems should be distinguished. The first is the proper use of resources - raw materials, sources, networks, interconnectors. They will be used in the best way, when market stakeholders will decide about it and this is a task to be solved by means of appropriate market design, he said.

A separate issue - according to Sikorski - is the selection of sources to produce energy at the lowest cost, having in mind not only the cost of production, but also the cost of the network. As he said, the right solutions should take into account two things: capacity release method, which takes into account the actual network flows and the appropriate zone structure in the European zonal model.

The point is that the whole project should provide feasible solutions, stressed the Vice-President of the PSE. As he explained, the results of today's single market model (EOM - energy only market) are often unrealistic and need to be improved by means of costly and non-transparent non-market measures. If a Polish producer competes with a Spanish producer - where the cost of energy transmission losses from Spain to Poland are included? - he asked.

Another complicated element to take into account in the new model is to ensure proper development of generation sources. Sikorski emphasized that the concept of European regulations says that the market should provide the right signals for the development of new sources. This means that deficits will create price incentives that will cause the emergence of sources. Meanwhile, many sources are covered by support schemes that distort competition, he noted. In addition, the large number of RES causes price fluctuations, which is an additional risk for generators.

Taking into account these circumstances, Sikorski estimated that the missing element is the capacity market, especially during the transformation period in which we are. Today, the market is running out of the reserves necessary to ensure safety, and when the reserves are over, the competition is over, he argued. And in order to ensure adequate reserves, we need a capacity market. It is the capacity market that is the missing element in the energy transformation period in which we are in, said the vice-president of the PSE.

Joanna Maćkowiak-Pandera pointed out that in the EU there are no common standards of reliability and a single methodology for determining the amount of resources available in a regional perspective. In her opinion, this should be the starting point. The next step could be the harmonisation of RES support schemes, and only the next stage should be the capacity market.

The situation in Poland is certainly exceptional, but when we introduce the capacity market, we have to answer ourselves where we are going and what resources we want to use in 15 years. If each EU country goes its own way, we can forget about the common energy market and the achievements of the last 20 years will be in vain - stressed Maćkowiak-Pandera.

Sikorski also noticed that the current shape of the market is completely detached from safety issues. For example, there is no guarantee that the missing capacity will be available through interconnectors. Therefore, the new solutions should include a stock exchange mechanism that prevents transactions that cause the energy necessary to ensure security of supply to flow out of the country concerned. Today, for example, the transmission capacities of interconnectors are taken over by market participants entering into transactions outside Poland, he noted.

Paweł Ryglewicz from the Ministry of Foreign Affairs also pointed out that a completely open market poses certain threats to the security of networks and systems. But, as he said, the definition of safety is evolving, which is different from what it was a few years ago. And also in Poland security will be redefined due to the fact that the market and the situation of the energy system will change.

An example of the direction in which the definition of safety may change was given by Tomasz Sikorski. As he said, today we are beginning to wonder whether energy is a service that must be available always and at any price. We are starting to wonder how to manage a situation where it is cheaper to have no energy for some time than to have it at a very high cost, he said. If a gas-fired power plant is to be used once every 10 years, maybe we should stop using it and openly admit that we cannot afford it - he pointed out.

Matt Hinde, former Head of European Strategy at DECC (no longer existing UK Ministry of Energy and Climate Change), said that a well-designed market is the best guarantee of security of supply, although a certain level of independence for individual countries should be in place. As he added, while the United Kingdom was in the Union, it was also interested in developing the internal market as the best way to ensure security and choose where energy should be produced.

After Brexit, the degree of integration of the UK market with the EU market remains an open issue. If the United Kingdom stays there, it will have to comply with the common rules of the game - he said. If the British people decide to break these ties, they will be able to do whatever they like in their backyard. But will it mean benefits for the consumer?, commented Hinde.

Is it at all possible to agree on a common shape of the European electricity market? - Everything is feasible where the political will is appropriate, said Vinois. In his opinion, it is enough to compare the situation 10 years ago and today, for example in the Baltic States, because we can see what progress has been made. As he said, Poland may renationalise its energy policy, but it will be very expensive, and the EC will not look at it with enthusiasm. Consumers will pay much more for a capacity market that is based solely on national resources, and yet the Commission's aim is to optimise resources and infrastructure for the benefit of citizens, said Vinois.

The road to the new European market is far from being clear. There are beautiful Community ideas, but when we move to, for example, harmonisation of support for renewable energy sources, it is difficult to speak of a common position - noted Ryglewicz. In his opinion, there will certainly be a group of countries pushing for the rapid development of the common market in the EU, but Poland will rather find itself outside it. We realize that the return to coal in its pure form will be difficult, and the complete transition to RES - impossible, so we will probably meet somewhere in the middle - he said. It depends on how far the EC's proposals will go - he added.

Joanna Maćkowiak-Pandera noted, in turn, that the spread of the auction system in Europe can be considered as a step towards the harmonisation of support systems. At the moment, however, there is a lack of trust, as the common market means less energy on this market, and in Poland there is probably a fear that full integration will result in the collapse of the Polish generation model, she said.

Jean-Arnold Vinois, on the other hand, recalled that the Commission was only making proposals after having heard all parties. The final decisions are taken by the Council of the EU and the European Parliament. Therefore, in his opinion, the challenge for the Commission will be to find a solution that will win a majority in the Council and in the EP. Besides, every country should know what it wants, and today many of them simply do not know it, he added.