UPDATE 1-EU says Poland power capacity market possible with conditions

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KATOWICE, Poland, May 11 (Reuters) - Poland could set up a power capacity market under certain conditions, EU Commission Vice-President for Energy Union Maros Sefcovic said on Thursday.

Poland, which produces most of its electricity from coal, hopes to launch a capacity market in which producers are paid to keep power plants online to generate electricity when needed.

“After our very profound analysis and sector-wide inquiries the European Commission concluded there might be circumstances where capacity mechanisms and capacity markets would be needed,” Sefcovic told the European Economic Congress in Katowice, southern Poland.

“At the same time, we also proposed several conditions which should be met before the capacity markets are introduced,” he said.

Capacity mechanisms can make power supply more secure but the European Commission is worried that if not designed properly such a system could hinder competition and electricity flows across borders. It could also lead to higher electricity prices for users.

“The planned law on capacity market in theory secures Poles against breaks in power supplies. In practice, though, this is another tax, which would preserve Poland as a coal energy heritage park,” environment non-government group Polish Climate Coalition said.

It calculated that launching a capacity market in Poland would increase the electricity bill of an average household by 120-140 zlotys ($36) annually.

Sefcovic said that a proposal should take those aspects into consideration, but that there are also more conditions.

“It should be temporary because through the capacity market you should actually cure the problem on the market itself,” he said.

“The last condition was that if you want to invest and use public support for such a capacity mechanism you should also make sure that you are supporting the best available technologies.”

The European Commission has proposed a limit on emissions of 550 grams of carbon dioxide per kilowatt-hour for new plants, something which Poland has called that “unacceptable”.

“We have a very intense exchange (with the EC) on this subject, on different solutions, proposals,” Deputy Energy Minister Michal Kurtyka said at the conference.

“We are working to ensure that this mechanism is transparent to take under consideration neighbouring countries, so we are in a position to move forward and compete in this important area as quickly as possible,” Kurtyka said.

$1 = 3.8899 zlotys Writing by Agnieszka Barteczko