Generation adequacy, capacity mechanisms and internal market in electricity

The CEZ Group believes that fundamentally the internal market is a self-correcting mechanism that enables energy markets to function under normal conditions without any support mechanisms.

However, the functioning of the internal market is being currently hampered by a wide range of support schemes for renewables, which as such make the system more expensive and lead to decreasing returns from conventional resources. Existing feed in tariffs (FITs) for renewables should be abolished as the renewables technologies are already mature enough, those investments which need stabilization of revenues should be integrated into the market as much as possible. Moreover, any new FITs should be technologically neutral.

The CEZ Group considers that there should be no capacity payments available for existing power plants. The current capacity schemes should be abolished when consistent with maintaining security of supply. The EU should coordinate this process. The internal market should not be distorted by any unjustified subventions; however in order to be able to deal with their consequences, the Member States should be allowed to temporarily as a short term solution establish capacity mechanisms to ensure security of supply. Electricity produced under such schemes should not be allowed to be exported from the given Member State. Otherwise distortions are exported. All capacity mechanisms should be discontinued once EU ETS is fully functional and FITs are removed. Capacity mechanisms should be available only for technologies complying with emission limits set by the relevant legislation.

The capacity mechanisms should be introduced only if and when steps to improve market functioning are clearly insufficient. The current market uncertainties combined with the malfunctioning of EU ETS create a context in which there is often no sound business case for investing in the capacity needed to guarantee security of supply. In these circumstances capacity mechanisms may be necessary. While CEZ Group hopes and believes that the current market malfunctioning can and will be addressed (this means the EU ETS reform, real implementation of 3rd liberalization package in all MS and RES being responsible for balancing), this prospect does not address the failure of the current market place to support the investments needed to ensure security of supply and achieve decarbonisation targets. Support mechanism may therefore be required today even if they would turn out no longer to be necessary by the time that the new capacity is built because absent such mechanism the project will not go forward. It is important that the Commission takes this time dimension into account when assessing whether improvements in market functioning eliminate the need for support mechanisms. The Commission must distinguish improvements that can be achieved in the short term and those that will materialize only in a longer time frame. The latter are unlikely to address current investment impediments because investors want to see the improvements before they factor them into their investment decisions.