June 1, 2015 / 10:41 AM / 5 years ago

Germany close to signing power market agreement with neighbours

BERLIN (Reuters) - Germany is close to signing an agreement with its neighbours for common rules allowing price swings in the wholesale power market, its deputy economy minister said on Monday.

Apart from seeking to embed its future power market design in Europe, the potential agreement is a sign the government is moving away from paying utilities a premium to keep loss-making plants operating and betting on market forces instead.

Rainer Baake, a state secretary for energy in the economy ministry, said Germany was close to signing the agreement with its “electrical neighbours” - including Sweden and Norway - that would dissuade them from setting price caps in their markets.

“If we work within an internal market we have to define common rules to make sure that in times of scarcity there is no intervention, because if we do so we are going to save our customers a lot of money,” Baake told a conference in Berlin.

“I hope that this agreement will be signed pretty soon.”

Due to a growing exchange of electricity with neighbours, the common rules are necessary.

Germany, Europe’s biggest power market, is looking to draw up the new market design before the parliamentary summer break but must align it with the EU strategy to work towards a single energy market.

Germany shares borders with nine countries and is linked to the Nordic region via power cables, which means that its pricing policies have to be accepted and shared by neighbours that will be affected.

With the share of electricity generated by renewables rising, Berlin must work out how to safeguard permanent electricity supply to avert blackouts when there is a lull in variable wind or solar energy.

Mostly thermal power-based companies like E.ON and RWE have long lobbied for a so-called capacity market funded by the public to compensate them for keeping loss-making power plants on-line as backup.

Their plants have been pushed out of the market because weather-driven renewables take priority on the transport grids.

But government members have spoken out against what they call “aid” for power plants, requesting prices should be allowed to peak wildly at times of real scarcity, to help steer the matching of supply and demand.

Germany’s strategy of allowing real tightness to drive up prices and activate thermal capacity would not work if its neighbours were not aligned.

The government is due to publish a more concrete ‘white paper’ soon on its market design plans.

Reporting by Caroline Copley, editing by Vera Eckert and Susan Thomas

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