Germany’s EON Facing Off With Merkel Over Capacity Market

German utilities including EON SE and RWE AG warned Chancellor Angela Merkel not to abandon power-capacity markets because it would threaten investments in new plants in Europe’s biggest energy market.

The European Commission is considering support for regional capacity markets and Germany’s opposition to the aid risks leaving the nation behind when it comes to regulation and spending on new generators, EON Chief Executive Officer Johannes Teyssen said today in Berlin.

“The train is leaving the station, and Germany needs to stop trying to slow it down get on board if it wants to avoid having terms dictated to it,” Teyssen told an energy conference in the German capital. “Security of supply needs a fair market and a fair price.”

Merkel and Economy Minister Sigmar Gabriel have said they oppose the measures, which pay utilities for providing backup electricity at times when power generated by renewable sources, such as the sun and wind, can’t supply the grid. Loss-making fossil-fuel generators shouldn’t get state aid in a market already suffering from overcapacity, Gabriel’s deputy, Rainer Baake, told the same conference.

“We have no capacity problem in the next two to five years,” he said. It’s not the role of a capacity market to keep unprofitable plants going, he said.

Free Market

EON and RWE are struggling with a record four-year slide in prices after Merkel’s move toward subsidized clean energy created a boom in wind and solar amid slowing power demand. German electricity prices for the year ahead, a European benchmark, dropped to 31.15 euros a megawatt-hour on Jan. 7, a 10-year low, according to data from European Energy Exchange AG.

“We need a capacity market,” RWE Deputy Chief Executive Officer Rolf Martin Schmitz told the conference. “The true costs of a capacity market are very low.”

A free market backstopped by an emergency reserve will be cheaper and work just as well as capacity markets, Gabriel told Handelsblatt. The German government won’t interfere to prevent power-market volatility, when prices drop to near zero at times of high clean-energy output and soar when wind turbines and solar panels don’t produce. Those swings will spark new investments, Gabriel told the newspaper.

Utilities don’t agree. They’d have to factor in those risks, making supply more expensive, said Sven Becker, managing director of municipal utility Trianel GmbH. Utilities are likely to shift their investments from Germany to France, for example, which plans to introduce a capacity market.

“If we have 100 percent renewables, the market price is zero, so how can we justify new investments?” Becker asked at the Berlin conference.

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