Page 10 - FSUOGM Week 38 2022

FSUOGM SPECIAL COMMENTARY FSUOGM

Source: ING Research
based on annual reports

Potential drawbacks: 10 things we will be nues from high power prices, but the scheme
looking out for could trigger an increase in power demand. For
Market intervention is bound to run into example, bakeries are switching from gas-fired
drawbacks, especially in markets as vast and ovens to ovens that run on power. And in some
complex as power markets. The wholesale countries, there is a run on electric heaters as
market cap in the Spanish power market pro- households try to save on gas.
vides a point in case. Due to power leakages The size of this feedback loop is hard to antic-
and increased power generation from gas-fired ipate as it will depend on future gas and power
power plants, gas use in the months following prices. In any case, it remains to be seen to
the introduction of the cap went up not down. what extent the goal of lower power prices can
These are the 10 things we will monitor be combined with the goal of power savings of
closely in the run-up to, and after, the introduc- 10% in overall demand and 5% in peak demand.
tion of the proposed price cap. Overall, savings tend to require high prices,
while lower prices tend to increase demand.
1. Power leakage
A price cap in the day-ahead market might trig- 3. Gas use in power sector
ger generators of renewable assets to sell their Northwestern European countries might need
power abroad, for example in non-EU markets to generate more electricity with gas-fired pow-
like Britain and Norway. The power market in er plants in case of sizable power increases and/
continental northwest Europe is well connect- or leakages. Hence gas use could go up instead,
ed with these markets through the Britnet cable while this market design is intended to save gas
and North Sea Link. There were already plans and reduce the impact of high gas prices on the
for a EuroAfrica interconnector that connects merit order.
Greece and Cyprus with Africa in a couple of
years’ time. And this energy crisis is likely to 4. Interference with longer-term power
speed up investment in new interconnectors. markets
Generators might shift from selling on the
2. Power demand spot market (day-ahead market) to longer-
The market reform aims to redistribute reve- term markets. For example, by selling power

P10 www. NEWSBASE .com Week 38 23•September•2022