Electricity market mechanisms go under the microscope at WEC Poland conference

WEC Poland delved into the issue of electricity market mechanisms in a conference in Warsaw on 29 October.

Under current conditions of low energy prices, many Polish energy experts have considered capacity market mechanisms to be the only solution for Poland to attract potential investors for building new generation assets to help safeguard long-term security of supply.

 

WEC Poland’s Chair Mr Henryk Majchrzak, who is also President of the Polish Transmission System Operator (PSE S.A.), opened the discussion by stating that the cold contingency reserve, operational mechanism and demand-side management (DSM) should now focus on avoiding the risk of power shortages before any new generation units are created. He added that after 2023 the problem of power shortage risk due to the shut-down of old generation units will return if adequate incentives to invest in new generation units are not created. According to Mr Majchrzak, introducing a capacity market is an appropriate solution to stimulate investments and it is now time to move beyond discussion and analysis and take specific policy decisions.

The first session of the conference was moderated by Tomasz Dąbrowski, Director of the Department of Energy for the Ministry of Economy, and Maciej Bando, President of the Polish Energy Regulatory Office who discussed incorporating market mechanisms into Polish energy policy to ensure the security of electricity supply. Mr Dąbrowski highlighted current risks and actions taken by the Polish government to stabilise the security of electricity supply. He emphasised the need for reform in the electricity market where the main aim should be to introduce capacity markets or power mechanisms to provide revenues which at least cover fixed costs with minimal profit while strengthening investment.

Mr Bando discussed the function of the Ministry of Economy and the Energy Regulatory Office while stressing the importance of security and sustainability of electricity supply.

Prof. Wladyslaw Mielczarski, from Technical University of Łódź, Poland, introduced the concept of using electricity market mechanisms to ensure security of electricity supply. He stressed the need for stable and long-term mechanisms which stimulate investment in new generation units, adding that a capacity market would be an appropriate mechanism that could limit long-term investment risk.

International experience in the implementation of capacity market mechanisms was also presented. Mr Michał Zapśnik from EY, a consulting firm, discussed capacity market mechanisms implemented in the UK, Spain and Italy. Mr Thomas Veyrenc, Director of the Department of Energy Market of the French transmission system operator RTE, presented the French capacity market model in detail, its evolution, and timetable for implementation in France.

A panel discussion was also held by representatives of the Steering Committee for the project to provide security of electricity supply in Poland through the introduction of capacity market mechanisms. In this session electricity supply companies were represented by Mr Michał Smyk from PGE S.A. and Mr Dariusz Niemiec, representative of Tauron Polish Energy while Polish TSO, PSE S.A. was represented by Mr. Andrzej Midera. The session was chaired Mr Stanislaw Poręba from EY.

This discussion looked at possible models for the implementation of the energy market. The panellists concluded that the best incentives to encourage investment in new power generation capacity would be the introduction of centralised capacity market with contracts-for-difference mechanisms. It was also noted that based on the US experience, the introduction of capacity markets does not always increase consumers’ final bill because the investment risk decreases and thus the overall cost of investment capital.

WEC Poland Chair Mr Henryk Majchrzak concluded the conference by encouraging potential members to join the member committee.

New report from WEC Poland

At the event Maciej Bando, President of the Polish Energy Regulatory Office, also presented WEC Poland’s new report on the development of the Polish and world energy sector. The work covers the period starting from the mid-19th century, and reviews in more detail the period after the Second World War and the first decade of the 21st century. The report is based on recent materials and statistical data published by various international organisations as well as Polish materials and statistics, particularly those published by the WEC, the Polish Central Statistical Office and the Polish Energy Market Agency. Numerical data contained in the report have already been used in recent years in various WEC Poland publications.