Is a capacity subsidy a good idea for utilities?
Utilities are facing changes across Europe as the integration of renewables gains pace. Members of POWER-GEN Europe’s Advisory Board address some of the key questions ahead of POWER-GEN Europe 2014, being held in Cologne on June 3-5
Energy Digital will be publishing top energy executives’ answers to imperative questions throughout the week. The Roundtable participants are Philippe Paelinck, VP portfolio and strategic positioning, Alstom; Risto Paldanius, director, business development, Wärtsilä; Dr. Franco Rosatelli, CTO, Ansaldo Energia; and Dr. Tamer Turna, CEO, Yildirim Energy Holding Inc.
How could utilities be compensated for providing the underlying base power required to ensure a more reliable source of energy – for example, is a capacity subsidy a good idea?
Tamer Turna: The capacity subsidy is a practical idea, ensuring return on investment and securing jobs. However, I would like to see only capacity generating technologies younger than 30 years being subsidized. Older plants should be decommissioned, as they have served their purpose (and earned their money), and this will provide room for more efficient stations.
Risto Paldanius: As mentioned, there are two challenges related to security of supply: We should differentiate between capacity, which means ensuring longer term adequacy and capability; and addressing the short term flexibility requirements of the power system. A market-based approach that rewards flexible providers and promotes self-balancing can incentivize investment in flexibility. Flexible providers can also be used to provide backup (i.e. capacity).
Philippe Paelinck To ensure grid stability in the future power market, renewables need to contribute to security of supply just as fossil fuel operators need to contribute to climate protection. This could be achieved by renewables supporting the efficiency of the overall system by being traded together with stable forms of generation – and specifically in combination with efficient fossil fuel generation. The market would also need to factor in the cost of increased intermittency. The experience in Germany however, has demonstrated that the incentives for renewables can be overgenerous and distort investment. The rules governing the internal market will have to be considered carefully, especially in a context of flat or even decreasing electricity demand.
The so-called capacity market is one of several potential solutions to this issue, but national initiatives would need to be closely coordinated at EU level to avoid another layer of complexity that could potentially further undermine the situation.
Alstom is participating in a number of pilot projects in order to help new business models emerge. These are designed to help develop new contractual frameworks for renewable integration, and to minimize the integration costs and delays resulting from network reinforcement, as well as incentives. The integration of distributed energy resources aggregation also offers a potential alternative to traditional generation.
Drax advances biomass strategy with Pinnacle acquisition
The Group’s enlarged supply chain will have access to 4.9 million tonnes of operational capacity from 2022. Of this total, 2.9 million tonnes are available for Drax’s self-supply requirements in 2022, which will rise to 3.4 million tonnes in 2027.
The £424 million acquisition of the Canadian biomass pellet producer supports Drax' ambition to be carbon negative by 2030, using bioenergy with carbon capture and storage (BECCS) and will make a "significant contribution" in the UK cutting emissions by 78% by 2035 (click here).
This summer Drax will undertake maintenance on its CfD(2) biomass unit, including a high-pressure turbine upgrade to reduce maintenance costs and improve thermal efficiency, contributing to lower generation costs for Drax Power Station.
In March, Drax secured Capacity Market agreements for its hydro and pumped storage assets worth around £10 million for delivery October 2024-September 2025.
The limitations on BECCS are not technology but supply, with every gigatonne of CO2 stored per year requiring approximately 30-40 million hectares of BECCS feedstock, according to the Global CCS Institute. Nonetheless, BECCS should be seen as an essential complement to the required, wide-scale deployment of CCS to meet climate change targets, it concludes.