* Says renewable power should no longer float in and out
* Wants conventional producers paid for stand-by capacity
* Says networks need bumping up to deal with new challenges
By Vera Eckert
FRANKFURT, March 1 German local utility group
VKU on Friday proposed reforms to make the power market more
competitive to integrate the rising share of renewable power at
reasonable cost and safeguard steady supply.
Wholesale power prices are teetering near eight-year lows
due to weak demand and overcapacity in Europe's biggest power
market of 517 terawatt hours (TWh) a year, partly caused by an
unhindered renewables expansion.
This has eroded utilities' margins while driving up costs
for consumers because their bills include fees used to subsidise
A national shift towards green energy from nuclear and
fossil fuels is at risk of failing due to this overspend.
VKU, which represents 1,400 utility firms with 95 euros
billion of annual sales between them, said a sweeping system
change back to market forces was needed to integrate
conventional and renewable power - already providing 25 percent
of total usage - and transmission networks.
"Outdated structures must be speedily revised and with our
energy market design we are handing politicians a constructive
proposal for a solution," said Hans-Joachim Reck, managing
director of VKU.
"We are not suggesting to change the power market abruptly
but we're building on tried and tested structures," he added.
Currently, producers are paid only for the volumes they
produce. But this no longer works for owners of conventional
power and gas capacities because renewables get priority access
at subsidised prices, as soon as and whenever they are produced.
Typically, wind and solar power units only generate from
around a third of their installed capacity, depending on the
weather, while traditional plants are becoming unprofitable.
VKU suggests building a traded market for capacity
provision, in which producers would be rewarded adequately while
customers could start steering their costs by reducing demand.
It recommended introducing this within three to five years
to be able to cope with increased demand early next decade, when
the remaining 12 gigawatts (GW) of nuclear power capacity is to
be shut for good.
It proposed auctioning the subsidies for a fixed number of
new renewable generation units in the future, replacing the
current system of paying all units whenever they produce.
It said this new measure could be put in place within one or
It also said grid innovations needed higher rewards because
the current system of regulated network fees did not create
enough incentives for operators to upgrade existing
So-called smart grids can handle increasingly intermittent
power flows and send locally produced power back into the grid.
(Editing by James Jukwey)