Vattenfall proposes a comprehensive expansion of fossil-free energy generation and power grids. The more fossil fuel-free our electricity system is, the less price-determining gas and other fossil fuels will become – and the more independent we will be from gas supply shocks. The EU Commission has announced a draft law on the EU electricity market reform.
Original Press Release:
March 10 -- Vattenfall issued the following news release:
- With concrete proposals, Vattenfall intends to gear the EU electricity market design towards a fossil-free age. This emerges from a current impulse paper of the company.
"In the long term, we will only overcome the energy crisis with investments," says the head of Vattenfall's trading division, Frank van Doorn, summing up the core statement of the paper. “Our ideas are therefore aimed at making the EU electricity market more investment-friendly. This is how we ensure climate protection and security of supply at competitive electricity prices.” The EU Commission has announced a draft law on the EU electricity market reform.
Specifically, Vattenfall proposes a comprehensive expansion of fossil-free energy generation and power grids. “The more fossil-free our electricity system is, the less price-determining gas and other fossil fuels will become – and the more independent we will be from gas supply shocks,” explains van Doorn.
Instead of prices, the EU reform proposals should therefore focus more on investments. “On the other hand, government caps on energy prices or revenue from electricity producers impede free pricing and create uncertainty,” says van Doorn. "This is poison for investments in fossil-free technologies".
Transparent price signals are important to protect consumers and ultimately prevent energy poverty. The EU electricity market should be made more resilient by activating demand reduction measures according to predefined supply bottlenecks.
According to Vattenfall, flexibility on the demand side is an important lever to prepare the electricity market for an increasingly fossil-free future. A more flexible demand should therefore not only play a greater role in the event of supply shocks, but should also be systematically anchored in the future electricity market design of a fossil-free age. "Because the larger the proportion of fossil-free electricity in the grid, the more urgent it becomes for companies and consumers to be more flexible in adapting the purchase of this electricity to the current supply of electricity," explains van Doorn. "It is therefore of central importance that the expansion of renewable energies goes hand in hand with the simultaneous expansion of flexibilities."
In practice, this can result in industrial companies adapting their production processes more closely to the electricity supply available or consumers charging electric cars when general electricity demand is low and renewable generation is high.
But the challenge of an increasingly volatile electricity supply should also be addressed and cushioned on the part of the energy producers - for example by providing storage solutions such as pumped storage power plants. "These are only financed by short-term price fluctuations on the electricity market," explains van Doorn. "That's why it's so important in this respect that price peaks in the electricity market are allowed and not artificially suppressed."
For the integration of fossil-free electricity into the future electricity market design, it is generally most efficient if electricity producers are free to choose whether they sell their electricity at market prices on the electricity exchanges, conclude deliveries with price agreements via exchange-traded forward transactions or long-term contracts (PPAs) with industrial customers, or alternatively Participate in government tenders – so-called contracts for difference (CfDs).
Vattenfall Trading boss Frank van Doorn explains it like this: "Each of the electricity marketing instruments has different advantages and disadvantages for energy producers - but overall the property of optimally balancing credit risks, liquidity risks and market risks. In the end, customers also benefit from this in the form of competitive prices.” If designed correctly, state contracts for differences could ensure calculable income, but on the other hand inhibit innovations. Long-term contracts, on the other hand, are often associated with significant credit default risks. "In this case, the state could use loan guarantees to make contracts for direct energy supplies more attractive," says van Doorn.
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