OREANDA-NEWS. Germany should on rely on its short-term power markets to balance out rising intermittent renewable power generation and deliver the most cost-effective flexibility options, German firm Next Kraftwerke has said.

Rising liquidity in the German intraday market, operated by Paris-based power exchange Epex Spot, has stabilised the amount of balancing energy which Germany's transmission system operators (TSOs) award in daily or weekly tenders, Hendrik Samisch, managing director of Next Kraftwerke, said on the sidelines E-World conference in Essen this week.

TSOs in recent years have also less frequently called on plants successful in the tenders to actually deliver balancing energy.

Renewable power generation has been rising strongly in recent years, reaching 194.1TWh, or nearly 30pc of domestic demand, last year. Renewable power generation stood at 104.8TWh in 2010, making up around 17pc of demand in 2010, historical data from German research institute Ageb show.

The rising share of renewable power generation typically increases grid balancing needs.

But the intra-day market rather than balancing energy has delivered the power needed to balance out rising intermittency in the German power system, Samisch said.

This has also contributed to sharply falling prices in the tenders for balancing energy.

Samisch now expects balancing energy prices to have reached a bottom and remain largely stable within the next three or four years. The gradual closure of Germany's remaining nuclear power plants in 2019-22 could then offer some support to the prices in the balancing energy tenders, he said.

Germany's government in its power market reform package, which is expected to pass through parliament by spring, plans to increase incentives for so-called balancing responsible parties (BRPs) to keep a stable supply and demand balance in their control area at all times.

Samisch said that incentives for keeping balancing energy needs low are already strong. But those BRPs which are not already active in the intra-day market are likely to start trading or search for partners to do it for them following the reforms, Samisch said.

Another recent change to the regulatory environment in the German power market is the introduction of mandatory direct selling for new or retrofitted combined heat and power (CHP) plants from the start of this year, with the exemption of small units.

The new rule is a good step in the right direction, Samisch said. The operation of a vast majority of CHP plants is driven by heating demand. The introduction of direct selling could increasingly encourage CHP plant power operators to view the German day-ahead and intra-day market as a revenue stream, Samisch said.

But Next Kraftwerke has a critical view on a bill on interruptible load, with Saemsich saying its extension is not necessary. Demand side management should be exposed to competition in the day-ahead and intra-day market just like other flexibility options, he said.

It was initially intended for tenders for interruptible load to end last year. But the government decided to extend the current decree until the end of June. The economy and energy ministry is now preparing a revision to the decree on interruptible load with the aim to introduce the amendment no later than 1 July.

Demand side management has big potential in Germany, Samisch said. But depressed prices in the German short-term power market reflect oversupply of flexibility at the moment and provide little incentives for industrial consumers to participate.

Germany could increasingly tap into potential for a more flexible demand side. The cost of offering demand side management and the revenue that industrial consumers will be able to generate in short-term power markets, rather than regulatory changes, will be the main driver for this development, Samisch said.