Capacity mechanism concept is being created for the development of local power generation

Date

2018 11 27

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The Ministry of Energy has taken practical steps in implementing the National Energy Independence Strategy (hereinafter referred to as the ‘Strategy’) while starting development of capacity mechanism concept. 

The draft concept will serve as a basis for conducting consultations with the market and deciding on the most suitable way to promote the development of flexible, competitive and reliable local power generation.

In general terms, capacity mechanism is a tool intended to secure adequacy of the power system and promote investments in power production capacities. Capacity mechanism is supposed to enable development of reliably available, flexible and fast-starting power generation.

One of the key principles of the development of the electricity sector laid down in the Strategy is to reduce energy dependence on electricity import by promoting sustainable investments to the development of local reliable and competitive capacities. New capacities would be developed in order to ensure smooth integration of renewable energy sources and contribute to further development of the ancillary services market.

FTI France SAS, a consultancy firm which took part in the implementation of capacity mechanisms in the United Kingdom, France, Belgium, Italy, Spain, Greece, Slovenia, Austria and Poland, will advise on development of the capacity mechanism concept based on the best European practices. Lithuanian electricity transmission system operator Litgrid AB signed an agreement with FTI France SAS on the subject on 14 of November.

The concept should serve in helping to choose the most suitable capacity mechanism model for Lithuania and structuring its implementation stages as well as envisaging the responsibilities of all participating parties throughout the legislative process. The concept will assess preliminary implementation costs.

The draft capacity mechanism concept is planned to be prepared in January 2019after which comprehensive consultations with market participants will be launched. The selected model will have to be enshrined in national legislation and receive state aid approval from the European Commission. The ministry plans to have the first auction carried out in the first quarter of 2020.

In the light of the experience of other countries that have launched capacity mechanisms, the schedule seems to be highly ambitious. Usually implementation of such schemes from conceptualization to auctioning takes at least two and a half years. For instance, neighbouring Poland that had its first capacity auction carried out this November had started developing its capacity market model back in early 2016.

In order to evaluate all possibilities of flexible generation, the Ministry of Energy has been currently consulting market participants regarding their plans to develop reliably available generation capacities with more than 10 MW installed capacity before 2024.

This September the scientists from Kaunas University of Technology for the first time conducted probabilistic adequacy assessment of the Lithuanian power system until 2030 that showed that Lithuania does not have sufficient reliable locally available capacities.