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28 Nov 2017

COGEN Europe Cosigns High-level Letter on Adequacy Assessment in the Electricity Market Design

European and regional adequacy assessments at the core of an efficient and secure energy transition

To Permanent representations to the EU, Energy attachés

Dear Madam,
Dear Sir,

COGEN Europe, E3G, Energy Cities, Greenpeace, SolarPower Europe, WindEurope and WWF would like to express their concerns regarding the latest developments within the Council on the Electricity Regulation.

Our organisations welcome the Clean Energy Package as a cornerstone to enable the advent of a consumer-centred European energy system, and to reach the three stated EU objectives: putting energy efficiency first, achieving global leadership in renewable energies and providing a fair deal for consumers.

We support an ambitious reform of electricity market rules that supports the transition of Europe’s power system, and unlock the remarkable potential of demand-side flexibility, thus empowering energy consumers. As such we are deeply concerned that, if confirmed, the latest draft Council position on the revised Electricity Regulation would fail to:

  • tackle overcapacity of generation that prevents long-term price signals for investors; and
  • minimise the risks that unnecessary capacity mechanisms are put in place.

These market failures should be addressed as they hamper the development of efficient wholesale markets, holding back consumer empowerment, demand response and the deployment of innovative renewables and energy efficiency technologies.

In particular, purely national approaches to resource adequacy assessments can no longer be prioritised. They have led to the uncoordinated introduction of capacity mechanisms, often giving little consideration to the actual adequacy problem and possible market distortions they induce. According to ACER’s 2016 Market Monitoring Report, one third of the national adequacy assessments still ignore or underestimate the contribution of interconnectors to adequacy. In addition, many countries still underestimate the potential of energy efficiency improvements and of distributed generation, located near a point of consumption, to reduce the need for costly investments in grid and centralised generation capacity.

To ensure that capacity mechanisms remain truly a last resort, and are only implemented when proven strictly necessary, it is crucial that adequacy concerns are identified by an objective EU-wide entity, fostering regional integration and European energy solidarity. In this regard, we call for the implementation of an EU-wide adequacy assessment as proposed by the European Commission in articles 18 and 19, in the recast Electricity Regulation. This should be the reference document for all Member States to monitor security of electricity supply and justify the introduction of a capacity mechanism.

In addition, our organisations believe that the EU-wide analysis could be supported by regional resource adequacy assessments, providing the required granularity to reflect adequacy needs at national, regional, and European level. Such regional assessments would:

  • Be developed jointly by TSOs of the same region, overseen by the Regional Security Coordinators or the European Network of Transmission System Operators for Electricity, and submitted for scrutiny to the regulators of this region, as well as ACER and the European Commission so as to ensure their alignment at European level, while thoroughly consulting stakeholders;
  • Indicate whether there is a discrepancy with the outcome of the European-wide assessment. If such a discrepancy occurs, ACER or the Commission shall provide an evaluation whether the divergences are justified;
  • Ensure a pan-European coverage; the regions could mirror the organisation of regional operational security coordination as foreseen by Regulation 2017/1485 or the organisation of capacity calculation regions as defined by ACER (in accordance with Article 15(1) of the Commission Regulation (EU) 2015/1222);
  • Factor in the contribution of renewables, self-consumption, on-site generation (including cogeneration), and demand response, the impact of energy efficiency policies, and assess flexibility needs;
  • Be reviewed every year so as to ensure consistency between procurement of capacity via capacity mechanisms, the size of the adequacy risk and the desired level of security of supply (indicated by national reliability standards).

Therefore, we call on your Ministry to take a firm position ahead of the forthcoming Energy Council supporting a regional approach to resource adequacy, and ensuring that demand-side flexibility can deliver its benefits for European consumers, innovation and climate ambition.

Kind regards,
The cosignatories