France setting up electricity capacity market -sources

Wed Nov 14, 2012 2:00pm EST

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* France lacks flexible power capacity to meet peak demand

* System will pay utilities for keeping plants available

* Decree to be issued in next few days

By Muriel Boselli and Marion Douet

PARIS, Nov 14 (Reuters) - France is putting in place a capacity market to improve the availability of its flexible power plants during periods of peak demand to prevent supply gaps, several sources close to the matter said on Wednesday.

The French government is expected to issue a decree in the next few days that would force electricity suppliers from the end of 2013 to buy peakload production capacity certificates to match their forecast needs three years ahead of time, the sources said.

To offset output gaps, the French government aims to build a system to prevent closures of uneconomical plants and encourage utilities to construct plants that can be easily turned on and off.

The new system means utilities will be paid partly on the basis that their peakload production tools are available and not just on electricity sales.

France's power grid RTE said earlier this year that the country's power supply was expected to weaken by 2016 due to the planned closure of old and dirty fossil fuel-fired power capacity, in line with European Union directives.

E.ON said earlier this year it planned to close four of its seven French coal-fired power plants by end-2015.

Germany's industry association (BDEW) has said it also needed a new power market system by 2015 at the latest to manage the shift towards more renewable resources.

While France generally has steady power supplies thanks to its 58 EDF-run nuclear reactors, it lacks flexible capacity - usually generated by gas, coal or oil-fired plants - to meet peak evening-time demand during cold snaps, when people return home from work and switch on heating and appliances.

"Each supplier will be forced to buy enough capacity certificates to match their client portfolio," an industry source told Reuters. "The decree will also include a tender system one or two years ahead of time in case of foreseen lack of capacity," the source added.

However, industry observers said it would be tough to put a system in place by end 2013 because the issue was highly complex. "The devil is in the details," one said. (Editing by Anthony Barker)

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