French electricity capacity market facing delays amid state-aid probe

The launch of an organised market for French electricity capacity certificates will not go ahead before the conclusion of a European Commission investigation, the spokesman for the exchange hosting the platform has told ICIS.

The EPEX Spot exchange had planned to launch the platform in February 2016 in order to establish a price signal for capacity ahead of the mechanism’s first year of delivery in 2017.

However, the commission has given no indication of when an ongoing investigation into whether the mechanism is in line with EU state aid rules will be concluded. “We cannot prejudge its outcome nor the timing of a decision at this stage,” a spokeswoman for the commission said.

The investigation was launched last November (see EDEM 16 November 2015).

“This is not good news,” a utility-based analyst said. “The market should have been trading significantly in advance of the first year of delivery but there hasn’t been any trades on the over-the-counter market either.

“There may be some sellers, but no buyers. There is too much uncertainty for that,” he said.

Uncertainty regarding the EPEX Spot platform has a further impact on the visibility of risk inherent in the mechanism. This is because energy regulator CRE intends to establish a reference price, which will determine the penalty that suppliers failing to acquire sufficient certificates must pay, on the basis of average exchange prices.

But this reference price will instead be established on the basis of over-the-counter trades if the organised platform fails to launch within a year of the regulator’s decision, which was published in May 2015.

Lengthy delay?

A similar state aid investigation into the UK capacity market was concluded 19 months after pre-notification and one month after notification.

The French government, on the other hand, does not consider its capacity mechanism to constitute state aid and never declared it as such to the European Commission.

“At first, we though the investigation was simply a matter of process, with the commission saying that it should have been notified, but it now seems they are challenging parts of the mechanism’s design, which could lead to changes in the rules. This would take months and the probability of 2017 now looks really low,” the analyst said.

The commission has also launched a sector inquiry on capacity mechanisms and had planned to publish its findings for consultation by the end of 2015.

“This is now more likely to happen in spring or early summer of 2016,” the commission spokeswoman said. But “it is unclear when the final report will be published”, she added.

Market-based mechanism

The French capacity mechanism aims to remunerate the availability of production or demand-side capacity by issuing capacity certificates. The price of certificates, which electricity suppliers will be obliged to purchase depending on the estimated consumption of their client base, is to be determined on market principles, without a central bidding process.

France has the most thermo-sensitive power system in Western Europe and relies heavily on the availability of flexible capacity to cover sudden demand spikes during cold spells. This has provided the rationale for creating a capacity remuneration mechanism. joachim.moxon@icis.com