Market regulatory interventions should be kept to a minimum

Paul Giesbertz

Interview with Paul Giesbertz, Head of Infrastructure and Market Policies, Statkraft Markets B.V., The Netherlands

Do you think that a 45% renewable energy share target for 2030 is feasible and is so how does the energy industry need to prepare for this?

Yes, it is possible. Several member states have already achieved a lot. At the same time, it has become clear that the EU needs to achieve its targets as efficiently as possible. A proper design of the support mechanisms is therefore important. It has also become clear that ill alignment of different targets for renewables and for reduction of GHG emissions can cause undesirable results. Therefore Statkraft proposes to adopt a GHG emission reduction target of at least 40% for 2030 as a single target.

What are the industry’s biggest challenges related to renewable energy integration and what needs to be done to overcome them?

The increasing share of renewables has reduced the profitability of conventional power plants. The missing money problem, which so far seemed to exist only in text books, has now hit the industry. Several power plants, including high efficient gas fired plants, are not able to recover O&M costs in the energy market and should normally close down. This would obviously threaten reliability of supply. If authorities want to safeguard a certain level of reliability, then a market redesign is needed. Capacity remuneration mechanisms are being discussed in several EU member states. It is, however, crucial that regulatory interventions are kept to a minimum and that the mechanisms itself are as market based as possible. This means, for example, that all capacities (including new and existing capacity) are treated equally. Only in such a way can costs for EU energy consumers be kept low.

Will we need to keep conventional power plants as backup in periods with almost no renewable electricity generation?

It seems obvious that conventional power plants remain needed, although it is not clear to what extent. Conventional plants, storage, smart grids, demand side management but also new technologies can and will all play a role in providing flexibility to manage the intermittency of renewables. The right mix of all these sources of flexibility will be determined by the market.

What role do you foresee energy storage to play in the near future?

Storage already plays a major role, the existing hydro reservoirs in the Nordic and Alp countries are the cheapest source of flexibility. The untapped potential in the Nordic market is still huge and further development of DC cables to the Nordic market is therefore crucial. We assess that the investment costs related to such cable projects will easily be recovered making use of price differences between the two markets, even in times when there is no need for additional flexibility. At the same time, the costs of batteries are also falling, so also other storage technologies will certainly kick in. However, we do not need to explicitly support the development of storage, for example by placing the responsibility for storage under the regulated domain of TSOs. The market will determine what role storage will play in the future.

Paul Giesbertz will be presenting on Tuesday 15 on “The green battery of the future” at European Utility Week 2013.

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