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Security of Supply Comments

Security of Supply Comments. P. CAPROS, RAE Greece. Outline. Definition Two naïve approaches Market-based solutions Illustration Security of supply: double edge. Definition. Security of Supply covers a broad range of issues Often confused with reliability or safety

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Security of Supply Comments

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  1. Security of SupplyComments P. CAPROS, RAE Greece

  2. Outline • Definition • Two naïve approaches • Market-based solutions • Illustration • Security of supply: double edge

  3. Definition • Security of Supply covers a broad range of issues • Often confused with reliability or safety • Long-term security of supply, refers to: • Minimise the risk of disruption of service • due to lack of supply of power and/or gas and/or imports • Avoid excessive increase of energy prices • due to anticipated disruption

  4. Two naïve approaches • Market cannot deliver security of supply so we have to address an “externality” • Impose last resort or similar public service obligations and socialise the costs • A central entity tenders capacity or incentivise capacity building • Let market free to deliver sufficient price signals; true but is the market perfect? • Other external costs, transaction costs, asymmetric information, insufficient market integration, absence of risk management, barriers to entry, lack of variety in supply, etc. etc.

  5. Market-based solutions • Set in place • adequate market mechanisms, activity rules, varieties of supply entities and transactions, sufficient market size, flexibility mechanisms • to accommodate risk so as to drive investment • in the presence of high time leads, external costs, large capital requirements, discrete solutions • Key is to • close the gap between Risk as perceived when investing in energy and Risk as perceived by financial and corporate entities • Market size importance is underestimated • More difficult: managing transition …

  6. Illustration • Greece: Small market in transition • Electricity and gas demand is anticipated to increase fast and existing supply capacity will not be sufficient after 3 years and beyond • The incumbent is reluctant to invest so as to improve balance sheet and also this is undesirable so as to leave room to competition • There is no competitive market experience • Financial entities and new market entrants consider that investing on a private basis is high risk ! • Transition through a bottom-up driven market solution seems impossible, and market liberalisation can be discredited

  7. Security of Supply: double edge • Ensure sufficient investment through market-based solutions • Must be top in the agenda of regulators • Difficult to deliver because of the nature of energy industry • Packages of measures to manage the perception of risks (multiple markets with flexibility) and enlarge the market size (harmonisation) • Not addressing security of supply leaves the room to political power to control and so cancel free competition • In Fragmented markets of Europe, security of supply may lead to a regime of market sharing among national monopolies instead of competition in a single internal market

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