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Fortum Says EU Energy Market Integration Hurt by National Policy

The European Union may see intended integration of power markets thwarted by national barriers to trade, Esa Hyvaerinen, a Fortum Oyj spokesman, said by e-mail.

The comments come after the European Commission, the regulator of the bloc, today urged governments to speed up integration while avoiding changes to power market designs through mechanisms that reward utilities for guaranteeing back-up plants when renewable power falls short, known as capacity markets, under consideration in Germany and the U.K.

On equal treatment:

“Fortum believes that capacity remuneration mechanisms, when considered necessary and adopted, should treat all capacities equally, regardless of the technology or the age of the generation unit. They should also be regional rather than national, taking full advantage of cross-border trade.”

On fragmentation risks:

“The rapid increase of subsidy-based, intermittent renewable energy has totally challenged the functioning of the energy market.”

“As a consequence, some member states are in the process of introducing national capacity remuneration mechanisms to support fossil balancing and reserve capacity, adding yet another subsidy layer that will further deteriorate the market functioning.”

On costs:

“Such capacity remuneration mechanisms will seriously hinder market integration. This is a very expensive solution for energy consumers.”

On investment impact:

“National capacity mechanisms should be allowed only if a member state can prove that its security of supply is seriously threatened and cannot be alleviated by cross-border electricity trade. The Commission should have a clear mandate in ensuring that possible capacity remuneration mechanisms do not distort the cross-border electricity trade or influence the location of investments.”

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