German Experts Warn Government Against Capacity Market for Power

A capacity market, designed to help unprofitable conventional power plants when green energy is unavailable, is not needed in Germany, studies published by the economy ministry on Thursday said, dealing a blow to companies that want such a mechanism.

Economy and Energy Minister Sigmar Gabriel has said he aims to present plans for a new capacity market later this year and his ministry had commissioned the studies to help the deliberations.

There are concerns that as Europe's biggest power market exits nuclear energy and switches increasingly to renewables, it could face electricity shortages.

The government wants utilities to keep gas- and coal-fired plants open to ensure a constant supply of power when there is a lull in wind or solar energy, which can fluctuate sharply.

Under a capacity mechanism, the government would raise funds to pay operators such as RWE and E.ON to keep open their conventional power plants, many of which are loss-making.

However, the studies published on Thursday concluded that the current system can function without a capacity market.

"The power market is functional and can guarantee supply security," one of the reports said.

The authors of the reports, by Frontier Economics, Consentec, Formaet and R2B Energy Consulting, said power imports and exports between Germany and other EU states could be increased significantly to create additional flexibility.

The ministry said it would evaluate the studies and discuss them with Germany's 16 federal states and the relevant industry groups.

State Secretary Rainer Baake said the studies were an important basis for a transparent discussion about power market design which had no predetermined result.

"It gives politicians a solid basis for an informed decision with which we can implement the energy shift in the medium and long term," Baake said in a statement.

A number of other European countries, including France and Britain, have already drawn up plans for some form of capacity market.

(Reporting by Madeline Chambers; Editing by Dale Hudson)