The European Commission today gave the go-ahead under state aid rules for the capacity reserve. The reserve serves to ensure the stability of the (in case, despite free price formation, supply should be unable to cover demand due to unforeseen circumstances).
The approval applies to reserve capacity of up to 2 GW. It covers three two-year contracting periods from 2019 until 2025. Following today’s decision, the German government will now swiftly put the rules in place for the reserve to be auctioned. The first contracting phase is to commence on 1 October 2019.
The capacity reserve will maintain technically suitable reserve power stations and demand-side measures. Following an auction, the transmission system operators will enter into contracts with power stations whose technical characteristics make them suitable to provide the reserve capacity in time and in a targeted manner. The capacity reserve will only be used if there is a capacity deficit, i.e. if, despite free price formation, supply should be unable to cover demand due to unforeseen circumstances.
If the capacity reserve is deployed, it will be paid for by the electricity suppliers which were unable to meet their obligations to supply; these suppliers will pay an appropriate percentage of the total costs of the reserve in line with their contribution to the need to deploy the reserve. The minimum price for the suppliers which failed to cover their needs will be €20,000/kWh. By comparison, the average wholesale price on the day-ahead market stood at €34/MWh in 2017. This gives the suppliers a strong incentive to cover their supply obligations at an early stage via futures contracts or agreements with their customers, so that the reserve does not need to be used at all.