UPDATE 1-RWE CEO says German energy shift must be fair to market

Tue Jan 21, 2014 6:06am EST

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* Says European conventional power a no go for investors

* Says capacity market could lead way for Germany

* Economy Minister says costs could be too high (Adds further quotes from Terium, story links, background)

BERLIN, Jan 21 (Reuters) - Germany's shift to renewable energy must be reconciled with the need to integrate it with existing power plants, the chief executive of top German electricity producer RWE said on Tuesday.

"Utilities expect a functioning and fair market system," Peter Terium said at a high-level energy conference, in the presence of Economy Minister Sigmar Gabriel.

"More decentralised energy has to mean more than just the isolated, parallel operations of many power producers," Terium said. "We have to integrate the elements of the energy transition in a sensible way."

Renewable power from over 1 million small wind and solar units has reached around a quarter of total production, thanks to generous support tariffs, which are paid independent of the traded wholesale market.

This has squeezed the generation margins of utilities such as RWE and E.ON, whose big, fossil-fuel-burning power stations are losing increasing amounts of money.

Terium said that, as a result, conventional power generation in Europe had become "a no go for investors".

Utilities want the German government to push renewables to get unsubsidised, market prices for power. They also want traditional power producers to be paid enough for providing secure supply through for a capacity mechanism to compensate them for keeping loss-making plants connected to the grid.

Terium said such a capacity market system, which is being considered in France among other European countries, could lead the way for Germany to align its power markets.

Economy and Energy Minister Gabriel said he was opposed to a capacity mechanism that would include all loss-making conventional power plants in Germany, warning that costs associated with such a step would be too high. (Reporting by Christoph Steitz and Vera Eckert, editing by Jane Baird)

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