Generation Capacity Subsidies Distort Trade, Nordic Nations Say

European Union nations’ plans to subsidize unprofitable electricity generators to keep them running will hinder power trading and impede market integration in the region, four Nordic governments said.

Denmark, Norway, Finland and Sweden said that paying power plants to stand by for operation during slumps in solar and wind output will distort energy-market functioning, in separate responses to a European Commission consultation published yesterday on the EU regulator’s website.

“Capacity mechanisms should generally be used as little as possible,” the Danish Energy Agency said on behalf of the government in its response, dated Feb. 5. “Capacity markets and capacity payments interfere with well-functioning electricity markets and will be difficult to reverse.”

Germany, the U.K., France, Italy, Poland and Belgium are among EU member states considering compensating fossil fuel-fired plants for low or negative returns caused by increased renewable energy usage, weak power demand and depressed prices. The European Commission in November urged governments to avoid uncoordinated capacity payment mechanisms that reward plant operators for guaranteeing back-up capacity and sought governments’ opinions on harmonizing energy security policies.

The Swedish government said in its response that capacity mechanisms will limit energy trade between countries and increase costs for power users. Finland’s Ministry of Employment and Economy said such payments will lead to over-investment or premature closings of other generation capacity.

“Ensuring security of supply is not just about avoiding blackouts,” Henriette Nesheim, assistant director general of Norway’s Ministry of Petroleum and Energy, said in a Feb. 7 letter to the Commission. “It’s also about well-functioning electricity markets.”

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