20 February 2013:
ENTSO-E Views on Security of Supply and Generation Adequacy

The European Commission (EC) released the public consultation on "generation adequacy, capacity mechanisms and the internal market in electricity" in November 2012. ENTSO-E (the European Network of Transmissions System Operators for Electricity) has published its response paper in February 2013.

The response paper is carefully balanced, but nevertheless it reflects an increasing risk and complexity in maintaining the security of supply in an environment with an increasing share of non-dispatchable generation.

My comment cannot reflect the balanced considerations in the paper. Therefore reading of the full 20 pages response report is recommended.

Uncertainty about Necessary Generation Investments
Additional generation capacity is assumed to be commissioned within the next few years, but ENTSO-E confirms that the increasing share of renewables in the energy mix has increased the risk on conventional generation investment. It is not clear if this will affect the security of supply in Europe.

ENTSO-E does believe that "the disproportionate use of support mechanisms undermine investor confidence in non-supported technologies". This might lead to medium to long term unintended outcomes which could impinge on system adequacy.

In addition there is evidence that more distinct security issues are emerging, especially the need for a faster-acting flexible plant which may be required at specific locations.

Strangely enough the EC questionnaire does not mention the risk of generation capacity being closed earlier than planned. Several power plant owners are preparing closures because traditional generation has been displaced by wind energy and the remaining production volume cannot justify continued operation.

ENTSO-E strongly recommends grid extensions and particularly facilitation of the grid extension process as means to reduce risk and uncertainty.

Will Capacity Mechanisms be needed?
In other markets a shortage of supply would cause higher prices encouraging investments in new production capacity. The problem with electricity is that real shortage and price volatility would disturb vital functions in society. The economic support for non-dispatchable types of generation disturbs the market and accelerates the problem. Therefore the introduction of other incentives named "capacity mechanisms" is being discussed.

ENTSO-E does not have a simple answer to the question, but they add an important point: Security of supply threats in systems with high penetration of renewables are not in generation adequacy alone but also in flexibility, voltage control and transient stability.

Therefore "capacity" is not only the ability to generate active power (MW) but also the provision of flexibility, reactive power (for voltage control) and stability.

Maintaining power plants as backup for non-dispatchable generation has a cost. ENTSO-E does not prefer any specific capacity mecanism, but says: "However it is true to say that any capacity mechanism is likely to come with additional cost for consumers on top of the energy only market. This cost is required to increase adequacy or to bring more capability in the system and should be compensated somehow."

Will Consumers Need Backup Generators?
Consumers have different preferences for security of supply standards. With time of use metering it will be possible to offer consumers a range of standards.

The ENTSO-E response paper mentions that consumers who do not need a high standard adequacy level should be able to make load shedding offers in energy markets, while consumers demanding a high level can equip themselves for this with, for example, emergency backup generation.

Transition Consequences
The national plans for a transition into a green future have been inaccurate on technical and economic consequences so far. The EC consultation will contribute to a better understanding of challenges and consequences of the transition. A smooth transition will depend on a realistic recognition of the challenges in due time.

Opdateret d. 21.2.2013