French Power Capacity Trading to Start in Nov., Regulator Says

Apr 14, 2014 8:17 am ET

April 14 (Bloomberg) -- Trading in certificates that guarantee reserve power capacity in France, Europe’s second biggest electricity market, may start as early as November, according to CRE, the nation’s energy regulator.

The targeted deadline for the new arrangement is Nov. 1, Cecile Casade, a Paris-based spokeswoman for the watchdog, said April 11 by phone. RTE, the French grid operator, submitted proposals on the nation’s capacity mechanism to CRE last week.

Power suppliers will from the winter of 2016-17 have to hold certificates equivalent to the predicted maximum demand of their customers to ensure consumption can be met. Any extra certificates, issued by RTE, will come from generators paid to be available during times of peak demand. Maximum power use rose by more than 30 percent in the 11 years through the 2012-2013 winter, RTE said.

“The need for capacity markets in France stems from the substantial increase in peak demand and the increased sensitivity of that peak demand to temperature changes,” Sofia Savvantidou, an analyst at Citigroup Inc., said April 11 in an e-mailed report.

With each one-degree Celsius drop in temperatures during cold winter weather, demand for power increases by 2,400 megawatts, according to RTE. The supply of 1,000 megawatts is enough to power 2 million European homes.

The program is based on the idea that suppliers should make it profitable for consumers to reduce demand at peak times. The more efficient and flexible consumers are the fewer certificates suppliers will need to buy.

Region’s Regulator

Payments for existing plants that are available at peak times will only be marginally more than the fixed costs to avoid rising consumer bills, according to UBS AG in Zurich.

The European Commission in Brussels, the region’s regulator, supports capacity mechanisms if there is a genuine risk of insufficient electricity generation, it said in state aid guidance published on April 9. Capacity mechanisms should be open to both existing and new plants and to generation from other member states, the EC said.

“The Commission is concerned about the eligibility of cross-border capacity to participate in mechanisms and of damped peak energy prices distorting flows,” Stephen Woodhouse, director at consultant Poeyry Oyj said by phone from Oxford. “The French proposal will need to demonstrate how it can mitigate these concerns.”

The mechanism will reduce peak prices as the scarcity premium is removed, said Woodhouse, declining to say how much prices may drop. Electricity sold from 8 a.m. to 8 p.m. is known as peakload, while baseload is delivered around the clock.

French peakload power for May delivery rose 0.5 percent to 36.95 euros ($51.09) a megawatt-hour today, according to broker data compiled by Bloomberg.