Germany has historically been anti-capacity markets, but the sharp increase in RES and projected decline in firm capacity has changed everything.
On August 2nd the BMKW launched a consultation on future electricity market design, including options for the CM (due to be launched in 2028). These are:
- Capacity hedging mechanism: Extended hedging obligation on parties to hedge volumes against price peaks.
- Decentralised capacity market: Parties secure capacity certificates or use own capacity to meet residual peak demand from prequalified assets.
- Centralised capacity market: Central body e.g. TSO determines the need for capacity and puts this out to tender through an auction.
- Combined capacity market: Combination of centralised market for new build assets and decentralised market for all assets.
The suitability assessment each option against various key criteria for a successful CM is summarised in the table above. Currently the BMKW considers the combined capacity market as its preferred option for delivering security of supply, alongside promoting innovation and flexibility. For any CM to be successful, it must be:
- Bankable – Long term price signals for new build at sufficient levels to allow merchant investment in firm capacity
- Market led – Technology agnostic so as not to limit competition and pre-judge winners. Ensure storage and peakers treated equitably.
- Clear of purpose – Capacity markets cannot solve all power market shortfalls. Be clear as to the measure of capacity and system security that is being targeted.
The consultation on market reform closes on August 28th, after which more details will be released on the chosen path forward.