Market design: Driving or derailing the transition?

Europe's electricity system is changing fast. As renewables continue to reshape the power mix, new challenges are emerging; from negative pricing and falling pofitability  to the increased need for flexibility, storage, long-term investment signals and the growing demands of AI-driven data centres.

In this episode of the Plugged In Summer Series, host Richard speaks with market experts Cillian O'Donoghue of Eurelectric and Fabian Huneke of Agora to explore whether Europe's electricity market design is still fit for purpose.

The discussion examines whether the current market framework is delivering the right incentives for investment, the role of contracts for difference (CFDs) and power purchase agreements (PPAs), the importance of forward market liquidity, and why flexibility (from batteries to demand response) will be critical to keeping the energy transition affordable and secure. The guests also discuss how Europe can accelerate grid development, respond to rising electricity demand from data centres, and ensure market reforms keep pace with a rapidly evolving power system.

Is Europe's market design driving the clean energy transition; or at risk of holding it back? 

Host: Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News

Guests: 

Cillian O'Donoghue, Director, Policy, Eurelectic

Fabian Huneke, Project Lead Energy Transition in the Power Sector, Agora

Producer: Alexandra Carlon 

Editor: Alexandra Carlon

#PluggedInPodcast #EnergyTransition #ElectricityMarkets #MarketDesign #Renewables #PowerMarkets #EnergyPolicy #GridFlexibility #EnergyStorage #CfDs #PPAs #DataCentres #EuropeanEnergy #MontelNews#Datacentres

Transcript

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 0:00

Europe's power system is evolving very fast, but with increased volatility, negative pricing capacity mechanisms. Is electricity market design still fit for purpose? I'm very pleased to be joined by Cillian O'Donoghue of Eurelectic. A warm welcome to you Killian.

Cillian O'Donoghue, Director, Policy, Eurelectic: 0:19

Thanks, Richard. Great to be back.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 0:20

I'd like to kick off with a sort of big question really, and that's about the current crisis in the Gulf. We're at the end of May, been this, is the, the war's been going on for three months. Is this a wake up call for Europe to really speed up the energy transition?

Cillian O'Donoghue, Director, Policy, Eurelectic: 0:33

Yeah, I'd say the first thing, this is not the first wake up call, but a strong preference from us that this is the last wake up call. So hopefully like we've seen in the seventies when we had the oil crisis, that we were react and make sure that we're less vulnerable going forward. So that's how we see it. We think what happened in 2022 with the Russian invasion was quite a clear message. It's not healthy being so dependent and imported fossil fuel. We see the effects it hap that happens on our economy when that source is cut off. And now what we're seeing in the Gulf is something quite similar. It, I know it's more oil and gas this time around, but just shows how exposed we are. So we have a strong preference and clear plan of how to make it happen. But to replace this dependence, import a fossil fuel with clean electrification, that's what we hope. You're asking me to predict the future. Will it happen? I don't know, but we're very much pushing so that it does happen.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 1:24

So let's talk about how we can make that happen then Killian, rather than getting our crystal ball out. But it current market structures and current market design, are they still delivering the right signals or should there be some changes?

Cillian O'Donoghue, Director, Policy, Eurelectic: 1:36

The market is delivering. So I guess the way we operate is your electrics our rep, the European Electricity Association. We take the Repower EU as our Bible to some extent. The kind of number is there and what they're pushing for is about 1,100 gigawatts renewables by 2030. And we're on course, we're a little bit off a kind of on course. So if I look at solar, we're supposed to have about 600 things, like five 80 and we're above 400 now. So we're two-thirds there. On wind we're about halfway there. So this is end of May, 2026. So we can get there. So by and large we're on track just a little bit off. So that shows the market is delivering.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 2:13

Contracts for difference, CFDs are increasingly becoming quite central to the investment of renewable investment into renewables. Do you see them as a long-term solution for balance balancing investor certainty with consumer protection?

Cillian O'Donoghue, Director, Policy, Eurelectic: 2:26

Yeah, I think CFDs are, would play a very important role in the transition. I think we have to look at, nearly all the new sources, renewable projects and winner, so very CapEx intensive projects and see if these are the best tool to make that happen. So we like CFDs, we think they've been very effective at building generation and it will be very effective at building new generation. What we do say and what we do welcome is guidance and see if d designs, we have to be careful. We don't want CFDs to have a negative impact on forward markets. We don't see if these to drive PPA markets. So it's all about how you design them. But we think correctly designed CFDs are very effective at building the generation we need.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 3:03

How do you avoid sort of CFDs or PPAs impacting negatively forward market liquidity? Because obviously forward market liquidity is quite crucial also for investors. So how do you balance those three?

Cillian O'Donoghue, Director, Policy, Eurelectic: 3:15

Yeah, so it's always a case of balance and that's that's generally what in electricity when you go into these nuances and balances between various elements. I think this is key in the CFD design that you don't drive the liquidity in the forward market. So it's also the reference you have in the CFD, you can have a certain percentage link to the forward markets once three years ahead. These are kind of designs we see. We worked, there was guidance issued by the commission over a year ago now on CFD design and we work with them and we also work with a consultancy called Compass Lexicon with papers out of how to optimise CFD design. So we think if you do those things, you can keep all stakeholders happy. What I would say, just if I go into forward markets for one second if that's okay, is, they are probably under discussed and they're extremely important. There's kind of a big focus on long-term contracting, developing long-term contracting in Europe and we get it. And particularly, industrials are a loud group. I used to work for them, I know very well and they need these, these big long-term contracts. I get it. But forward markets are extremely important and we need to do more to further develop forward market liquidity and that's something we push quite a lot. So we would also like discussion how we can make that happen too.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 4:23

Perhaps. It's easier said than done, but how do you push forward market liquidity? How do encourage or develop it further?'cause it is struggling in some areas.

Cillian O'Donoghue, Director, Policy, Eurelectic: 4:30

Yeah, so it is struggling in some areas. So we do see very big differences. I think it's no secret that German has, Germany has a very liquid forward markets and to be honest, a lot of our members even they're not based there, they're proxy hedge against the German reference. I think that's quite clear. What we say is it's actually a case of implementing a lot of the existing rules to make these things happen. We predicting with cross border forward hedging that more should be done there. To facilitate that, you should be able to book capacity probably to three years ahead. That's quite important. I know from a TSO perspective that does pose some challenges, but these are things that should be done. What we're not big fans of is this idea of virtual hubs. We think that will actually dry up forward market liquidities. I represent members throughout Europe and some parts of Europe. We don't have very liquid forward market, so we need to do something there, but we do think virtual hubs are probably not the optimum way to make that happen.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 5:21

Could you explain virtual hubs for those listeners who aren't aware of what it is?

Cillian O'Donoghue, Director, Policy, Eurelectic: 5:24

Yeah, so virtual hubs are concepts which were developed in the last electricity market reform. I think it's an idea which ace or seem to make think makes a lot of sense. So you have something similar in Norway actually, you have this EPA system where you actually use a virtual reference to trade going ahead rather than physical. But that's kind of the idea. It's a good concept, but in reality we just see it dries up for markets that we've done quite a lot of work in it. We've done quite a lot of analysis and that's how we see it. I work quite closely with Energy Traders Europe as an organisation that deals a lot with these kind of things, and that's kind of the conclusion we see.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 5:58

Policy makers, especially at the European level, Cillian, are trying to balance affordability, decarbonization and security of supply. So which of those priorities is creating the biggest tension in market reform discussions right now?

Cillian O'Donoghue, Director, Policy, Eurelectic: 6:11

Yeah, so I think what's interesting is, I've been in the energy space for 15 years now, we always affiliate between those three priorities. We all know you need to hit all three. I think at the moment, the, the focus has shifted. No secret more towards the affordability and the secure question and bit less so on kind of, is it green? But what I would say is from Herb perspective, it doesn't really matter because the solution to all three is the same thing. It's clean electrification. So if it's a question of competitiveness, we think, developing clean electrification, that's what we see now. Even the current crisis, which when you look at Spain and look at the price in Spain, those countries which invested heavily clean education are seen more competitive prices. So that's a solution there. What I would say, what is changing, what's becoming new is particularly cross Atlantic, is speed. How fast can you get these things connected? And that's particularly important 'cause there's new source of demand data centres, the way they see it during a global AI race, you know, and you need power. And you need power now. And we need to mobilise to make that happen. So that's a whole new ball game.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 7:18

In terms of, speeding up grid connections, for example, or getting these, these citizens online. It's also, data centres are quite hot political topic in some member states, aren't they? It's not always. So they're not, people aren't welcoming 'em with open arms, put it that way when some, there is a bit of difference across Europe, isn't there?

Cillian O'Donoghue, Director, Policy, Eurelectic: 7:34

Yeah. Very big difference. So I'm based in bruss as but actually I take this podcast from Ireland today and in Ireland data centres, about 21% of demand. If I left my house now and ask my neighbours, do you like data centres? Should we develop more of them? I don't think the overall response would be positive. There's a feeling, a sentiment, which is not one I disagree and not necessarily not one which I necessarily agree with, and one which not necessarily backed up by the studies, but there's a feeling that this is going to drive up prices for everybody. It's not necessarily the case, but there is a big pushback. It's also a big pushback in us by the way, in certain jurisdictions. We might not necessarily want these data centres. I think the way we see it as the power sector, I think the first thing say this is a good thing, this is a new source of demand, means we're a growing sector. We're always talking about electrifying buildings, transparent industry, but this is something new which is happening here and now, so we should welcome it. It's a challenge, but it's also a major opportunity. So I think it's important we get away from this negativity on the whole data centres. It's, it's a good thing. That's a starting basis. Then the question is how do we make it happen? And it's two elements, as you said, it's getting the most of the current grid and we need to make some reforms there and how we are more efficient and make that happen. And then it's planning for the future where we know we're gonna have this new source of demand. So it's how you get that right. What we hope, I hope when we sit down in four or five years and we look at, the number of data census and we increased a lot, we've seen that this is something that can be done. So we do see it's a good thing that can be done.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 9:02

There's a danger that Europe falls behind in that race to attract those data centres. And certain jurisdictions are ideal for data centres. Others perhaps not.

Cillian O'Donoghue, Director, Policy, Eurelectic: 9:09

Yeah, so again, it's two things I think we've fallen behind on the AI foundation model race. I think that's, we're nowhere in it and we need to be honest, I think there was a report out last week where there's only one European company in the top 100 of foundational models. So you know, you have your Big four US hyper securities, your Big three Chinese, that's we're struggling on the kind of foundation models. But then for the adoption of AI Europe, we could actually. Be quite good at that. And I think in putting these data centres, Europe would help a lot and helps a lot with latency and interference. That's basically having these things here and now. So I think it is good for us to ha to replicate these data centres in Europe. That's quite clear. There's a broader more geopolitical question to what extent we want to develop foundational models here in Europe. Europe, and to what extent we want to mobilise society to make that happen. Again that's beyond my pay grade. I'm used to dealing with electrons, but that is discussion which we'll probably need to have have going forward.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 10:05

Absolutely. It's a very important discussion. I'd like to move on to another topic and that's negative pricing and negative prices. Cillian, it's becoming ever more prevalent. Prevalent, sorry. Even in in, in European markets. And is that a problem? Is it deterring investments important to investments in, into renewable energy?

Cillian O'Donoghue, Director, Policy, Eurelectic: 10:23

So firstly the facts do back up your sentiments. It's kind. Yesterday I had a meeting with my market analyst team and we're looking at kind of the outlook for the year so far. And if you look at negative prices, so if I go back five years ago, 0.5% of ours, we had negative prices in Europe. Yeah. Now it's 3.9%, so almost 4%. So it's a big increase. If I look at Australia, it's much more extreme. They've gone from almost, I think less to 1% to over 10% now. So that is a phenomenon we're seeing in particularly regions which have, have lots of solar and it can be a risk if you see foreign capture rates the big increase in negative prices makes the. It makes it less investible. That can be an issue. But the solutions are quite clear from our side. I think we need more grid, we need more flexibility and we need more demand. And generally that's kind of a mantra. You see your electric and myself repeating a lot 'cause we're reaching a more mature stage of the transition. It's not a question of if with renewables, we've seen the drops in the, the price of batteries, 91% solar, 89%, we know all this stuff. We're reaching a more mature stage. And it's about ensuring that these investments are profitable and very important to being more flexibility to the system that will ensure that society is, that the transition is cheaper for everyone overall. I know it's a mantra, it's a buzzword flexibility, but we really need to understand that if we can get more flexibility in the system, it makes a transition cheaper for everybody. It's a win-win for everybody. That's really something very important.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 11:59

When you say flexibility, what exactly do you mean? Can you break it down?

Cillian O'Donoghue, Director, Policy, Eurelectic: 12:02

Yes. So let's break it down. So let's look at our perspective. So the power sector, the vast majority of new additions from our side are going to be intermittent variable renewables. Yeah that's what we see. That's where we're gonna be adding to the grid. If you look at our roadmaps for 24, 20 50, that's what we're adding. So that is a variable source from our side. And what we need then is we need in the demand side there to be flexible to adapt to this variability. And it's different types, dues within the day. As there's weekly and there's seasonal and then it, we look at the, today it's about batteries. Batteries can really react. You take the power when there's an excess and you release when there's less. And this lithium iron battery revolution is a major thing. Batteries are something which are gonna have a major impact to transition. They're fantastic in that sense. Then you have the seasonal flexibility, which is, okay, we use more electricity in winter, et cetera. There's different solutions for that. The challenge we have as a sector is finding decarbonized seasonal flexibility. We have gas, but we need decarbonized sources. I know you've hydro and where you're based in the Nordics, but some places don't have that. That's the challenge we have as a sector. But this is the kind of flexibility we see. But then what we want in terms of our consumer segments is there to be flexible as well. Industry, I used to work for these guys based on consumers, but we see if you can, if they can be a bit flexible, then they will get cheaper power prices. EVs, there's a huge potential EVs, you have a huge amount of batteries. If you look at the numbers of EVs we're gonna have in the system by 2030. If, if they plug in when prices are cheaper, if they release, when prices are more expensive, then bring huge source of flexibility to the system. It's a transition. We need to bring society with us and the reason we keep pushing this is we will get more buy-in field transition if it's cheaper. And for us to make that cheaper, we need everyone to be on board and to promote this, this flexibility question.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 13:47

If we look forward now Cillian, it's 2030, do do we need more reforms or more policy interventions to drive the energy transition? Or should policy makers stay off and and just let the, the market sort itself out. What's your view here?

Cillian O'Donoghue, Director, Policy, Eurelectic: 14:02

I think in terms of the main contours, it's quite clear we have the, quite the correct market design in place. When new cont we did reform the market in 2022. We assessed, we had detailed impact assessment and the conclusion was very clear. The current market design works well, but we need to do two things. We need to promote more flexibility in the system and we need to promote more long-term contracting. So we should be looking at market-based instruments to support that. If you break it down. So flexibility already covered, it's a case of implementing existing rules. And the best solution I think for high prices is high prices because then people react. That's quite clear. And then when we look for long-term contracting, we do see roles for organisations like the EIB, the European Investment Bike to de-risk some of the investments needed.'cause we're dealing with one, sometimes one off taker. We need to have a de-risking mechanism there. That's the, the first thing we'd see is long-term contracting. And then for the, the smaller guys, not your big industrials have a big team of for putting out these PPAs, your supermarkets, these guys, we probably need platforms where they can go online and say, okay, this is this kinda lock in my power for five, 10 years ahead. This is the price, let's make happen. So simplification on their side, but this is what we should be aspiring towards, not these wholesale reforms. We don't think they're healthy and they have a very, very negative impact on investment. And that's something which what scares people away, given the amount of capital we need to deploy.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 15:25

Killian, thanks very much for outlining some of the solutions that are needed to drive the energy transition forward. So thank you for being a guest on the plugged in podcast.

Cillian O'Donoghue, Director, Policy, Eurelectic: 15:33

Pleasure, Richard, anytime, and really enjoyed it.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 15:36

So if Killian O'Donoghue argues that Europe's overall market framework is largely working, the next question is whether the finer details of that market design are keeping pace with the energy transition. As a renewable generation grows issues like falling capture prices, flexibility, storage, and investment certainty are becoming increasingly important to explore those challenges in more detail. I spoke to Fabian Huneke, project lead for the energy transition in the power sector at Agora. And I'd like to kick off the discussion really Fabian by talking about the crisis in the Gulf. We're talking at the end of May. I just want to have some idea of the implications for the energy transition in Europe. Should we really be going full speed ahead or should we be slowing it down? What's your view here?

Fabian Huneke, Project Lead Energy Transition in the Power Sector, Agora: 16:26

We had this fossil price shock in the 20 22, 20 23 because of the high gas prices and the power price reacted very sharply. And we had really high three and four digit power prices in that time. Now, four years later, we are having, again, a fossil energy crisis, a very big one on a global scale. And the oil price is shockingly like high and LNG volatility is very high, but the power market in Europe actually wrecks a little bit like smoother. The power system is more resilient to this shock than it has been four years earlier, at least like from spring to autumn. The power prices through the really like ex expansion of vol protects and wind power and batteries is okay-ish. So if you have an electric vehicle or a heat pump at home, you don't really have to care so much about this energy prices as you had four years before. This is a good thing to learn that like the strategy of renewables as a insurance policy against geopolitical shocks actually works and we're like on the right track and we should go on, especially in winter because the winter power prices due, the future power markets. And you can see that in winter the power price still is really high because, our photo protect doesn't help a lot in winter. We need some more wind for this. Yeah. But the strategy is the right one. It works. We are more independent from this geopolitical shocks than we have been earlier.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 17:52

That's a very good point, Fabian. Now let's talk about renewables expansion in Europe. There's a lot of talk about cannibalization, falling capture prices across European markets now. Now how serious is this for the profitability of renewables and investment signals?

Fabian Huneke, Project Lead Energy Transition in the Power Sector, Agora: 18:09

The kickoff que question was on like low power prices are something good for consumers. Now, low power prices are something bad for producers, for generators. Yeah, that's totally true for the capture prices. So what does a foothold take or wind power. Plant earn at the market, and this decreasing capture prices, they are a hurdle to take for renewables. So we have, we are seeing a lot of low and negative power prices when there's a lot of wind and sun in the system. But actually, I would say like last year and day before the, at least in Germany, the, the capture price was stable. 4.60 cent per kilowatt hour. It's not perfect, but it's still a good thing. And even if you were able to turn down, feed in the hours of negative power prices, you could add another, another 2 cent per kilobit hours in the last two years on this capture price. So it's still I would say at the moment, the power price level and the capture price level for investments in Volta and wind power, especially for wind power, are still high enough. The thing is more what is the expectation, isn't it, Richard? So the, the thing is, the current spot market still gives some good returns. But how should we know how this will evolve in the next 20 years or 10 years of your investment? And this is the thing which concerns most, most people. So if you have this decreasing capture prices, the next years how you don't know the pace of electrification. You don't know the pace of how quick people will shift to electric vehicles, heat pumps. How quick will the industry shift from gas to power as their main source of energy? And as you don't know this, there's a high risk that the pace of deployment of wind power will keep up, right? And the pace of electrification is not as fast as it should be. And this is a kind of investment. This investment risk is a hurdle to take for the renewables investments.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 20:11

Isn't it also crucial that you have very liquid forward markets so that developers and producers can hedge some of their exposure going forward? It's not just about looking back and having historical prices and seeing gauging what the market is but also looking forward and being able to hedge that risk.

Fabian Huneke, Project Lead Energy Transition in the Power Sector, Agora: 20:27

I think like the forwards markets, the futures markets, at least like from the joint perspective, are have a very high liquidity. So there are a lot of prices, but still what is traded there are futures and forwards, like baseline peak products and PPA, the li the liquidity for like profile shaped renewable profile shaped products is too low. They're like the wind and power wind and PV profiles are not really a part of the portfolios of most utilities and are not traded for and back as futures and forwards are being trained for and back. So at the moment, this is like one of the problematic fields in the chain of like we are having like this phase one in the power market investments. Then there's this hedging phase, and then there's the spot phase. And in this hedging phase, we are like missing fresh electricity from the pv, from the wind power, but also from the gas power plants, which are financed by. Capacity re remuneration mechanisms and not by, by trading on the futures market. So there's kind of a, a fragmentation of markets and the investment market is, or orchestrated more by the state, and now the fresh electricity from wind PV and also gas, that is not really taking part in the future forwards market. And this is, there's a hole and this is, yeah. Concerning.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 21:48

How do you fix that hole?

Fabian Huneke, Project Lead Energy Transition in the Power Sector, Agora: 21:49

As I just said, like we are, like, we don't have to choose between a purely market or a purely state orchestrated renewable build out. So the investment scheme can use both elements and combine the strength of both elements, which would be combining, for example, CFDs auctions and PPAs. So you don't have to choose for the one or only for the other. You can combine both. We think that like a sequential way of combining both elements would be very beneficial for the futures market. So start with a PPA phase and then later on having the CFD phase later on for like having the state as a very good counterparty lowering cost of cap, cost of capital in the second phase. So combining both elements, allowing investors to sell the electricity first in the market and later on in the later production years, having the CFDs backing up the investment with the long-term risk, which can be taken over much more easier and to lower cost of capital by the state. So this combination would allow the renewables to enter the future market. And this is why we are like promoting this, this kind of combination of CFDs and PPAs.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 23:03

So you think exchange market liquidity, whether it's at established power exchanges or on the OTC market through brokers, that's not enough. You need something else? You're saying?

Fabian Huneke, Project Lead Energy Transition in the Power Sector, Agora: 23:14

I'm always looking like from this German perspective and we last years and until now we are having this one-sided CFD, which kind of opens the possibility for the investors to. To have this one-sided CFD in the background for the financing, but selling the electricity via ppa, short-term PPAs, to the market. So there is an interaction between future market and the investment mechanism. And now this year, CFDs will be introduced. From next year on the new options will be two-sided CFDs.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 23:45

Playing the difference between one-sided and two-sided Fabian, for those listeners who aren't aware of the contracts for difference. And then the differentiate differentiation between the two.

Fabian Huneke, Project Lead Energy Transition in the Power Sector, Agora: 23:52

The term difference in contracts for difference stands for you calculate like what is the market value and what is the, the what the premium like and now if this premium is positive, you will get a payment from the state. And if it's negative, a one-sided CFD will say you can keep the rest, that's fine. But a two-sided CFD will say you need to pay back this amount to the state. And this actually changes a lot, this introduction of, to two, two-sided CFDs in the German market because you won't just be able to like sell the electricity to the future market because if the state would allow you to like change to the PPA market, you would say oh, I need to pay back something to the state. So I will just move out of the CFD and go to the market phase. And the, the state won't have any like income from the safety, but this is like the ultimate goal of the whole thing. And then like in the next energy crisis, they want to have some incomes to spend it on consumer helps. Yeah. So this this just doesn't fit. The risk is that this cannibalises liquidity in the future market.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 24:58

But do you think then, Fabian, that the current market design and the structures reward, flexibility, storage, demand side response? Or is it too, are we too focused still on, on generation and getting them the megawatts out there?

Fabian Huneke, Project Lead Energy Transition in the Power Sector, Agora: 25:13

It is a good thing that we see the volatility of the prices in today's spot markets. So we are having really high price spreads during, from daytime to nighttime. We're having really high volatility in the intraday market. So at the moment there's a lot of potential benefits from selling your flexibility to the spot markets. And this is why we are having like really something like a, a gold rush on battery storage systems in Germany. Everyone who can get a grid connection has, has a huge income in the next couple of years.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 25:48

If I understand you correctly, what you're saying is that, both the TSOs or the grids or the, the structure around grid fees as well as the, the sort of policy makers in Berlin have chosen this capacity market, which for, for gas are lagging really behind what's happening in the market so that you know that what's happening in the market doesn't reflect the rules for grid access, grid fees as well as for the capacity market.

Fabian Huneke, Project Lead Energy Transition in the Power Sector, Agora: 26:13

That's totally right. I think like one, one basic problem about this capacity market is that like the, the volume of the market and the volume of these auctions is calculated by studies which are conducted like with very long time. So maybe two or three years ago, they decided for the parameters for the studies to calculate how much, how plants, gas power plants they want to have in the auction about this volume. And now, like the market already knows that battery storages are much cheaper and that the electri pace of electrification is smaller than we thought three years ago, but the study still has the same result. And we're auctioning something, which we already know it's outdated two or three years. And this like slow response of policy and regulation to market developments is a basic problem in this whole concept of capacity markets. And I think policy kind of needs to be quicker. And also these studies need to be like more recent. And maybe to add another thing, you were asking about the flexibility. There's one thing which is not working at all, and this is like the local signal for flexibilities,

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 27:26

but I think you make a very interesting point about the batteries sometimes just add to the grid congestion rather than the help to decongest those, those bottleneck. But fantastic. Very interesting indeed. Fabian, thank you very much for your input and for being a guest on the Plugged In podcast.

Fabian Huneke, Project Lead Energy Transition in the Power Sector, Agora: 27:42

Thank you Richard.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel News: 27:43

And to you listeners, thanks for listening to this episode of Plugged In. If you enjoyed this discussion, please like rates and follow to make sure you get the latest podcast episodes as soon as we release them every Thursday. Finally, you can head to montelnews.com for more news and analysis from our team of journalists across Europe and beyond. See you next time.