Energy Lab | EU energy market 2.0



Energy sector in Europe is changing rapidly. Many countries are updating their energy strategies and the same awaits Poland. The partnership of and Forum Energii held an expert debate dedicated to the British experience in recent years. The special guest of the event was Prof. Michael Grubb from University College London, advisor to the energy regulator - Ofgem.


- All countries care about the same: stable energy supplies, low prices and reduced environmental impact. However, individual countries approach these issues in a completely different way, following their own paths. It is worth discussing the changes taking place in the Polish energy sector in an international context - said Joanna Maćkowiak Pandera, head of Forum Energii.

The Energy Lab on the 22nd of June was dedicated to the British experience of recent years. Poland wants to base the currently announced power market on the British model. This should guarantee the efficiency of investments in the energy sector and create an incentive to build new capacities. The experts also talked about the experience of energy market reform (EMR) and the prospects for the development of renewable energy sources.

In terms of reforms in the energy sector, the United Kingdom is ahead of Poland very significantly. The country liberalised its energy market 25 years ago. Over the years, this has posed many challenges, such as slowing down investment in new generation capacity and raising concerns about the security of energy supply. The UK, similarly to Poland today, had previously experienced a drop in electricity prices on the wholesale market.

In 2010, the coalition government decided to face these challenges by introducing Energy Market Reform - a reform of which the power market has become a part. Prof. Michael Grubb from University College London, adviser to Ofgem (the British equivalent of Energy Regulatory Office - URE - in Poland), who took part in our debate, pointed out that Poland should draw conclusions from the experience of the energy sector in the UK, but not copy them.

He emphasized that the capacity market is a transparent mechanism because generators apply for support through auctions and helps to minimize the amount of support needed. On the other hand, already after the introduction of the capacity market in the UK, it turned out that there are more capacity reserves in the system than it originally seemed, while maintaining the system costs energy consumers hundreds of millions of pounds a year.

- The Chinese proverb 'Be careful what you are asking for' is working well, because it is not clear what the effects will be. The government wanted new power plants, and they are not being built. Preparations for the construction of only one gas unit are underway. The support was given to the existing producers and the availability of capacity in the system was maintained, but the goal of stimulating new investments was not achieved - said Prof. Michael Grubb.

Some experts point out that the problem of lack of money in the system can be solved not only through the power market, but also through other tools, e.g. strategic reserves (Germany) and capacity payments (Spain) made by the system operator.

Monika Morawiecka, Director for Strategy, Regulation and International Cooperation at PGE, indicated that the introduction of capacity mechanisms in the energy sector should be associated with a change in the philosophy of thinking about the energy sector. - When many sources with zero variable costs (i.e. RES) enter the system, there is a need to re-model the entire market. It can no longer be based exclusively on zero marginal variable costs. And this change of the model is the main reason for searching for new regulatory tools, and not only the need to build new capacities, she explained.

- If we only needed new capacity, it would probably be enough to introduce long-term contracts for the desired types of investments - concluded Monika Morawiecka. She added that some countries are close to a situation where consumers pay not only for electricity itself, but also for access to it.

Paweł Smoleń, member of the board of Erbud, energy expert, agreed with her. - The current model of the energy market dates back to a previous era. However, I would warn against thinking that the capacity market will generate a stream of payments to producers only for their existence on the market. It is better to think about this solution as a market of professional system services provided by individual power plants in order to keep the system in balance - he said.  

All the participants of the debate agreed that the capacity solutions, which the Polish government hopes for, should be carefully considered. Prof. Grubb pointed out that one cannot look at the sector in a selective way. In his opinion, each country should first consider an overall strategy for this sector before creating and implementing the capacity market.