Reintegrating reserve power plants into the electricity market can help dampen short-term price spikes through the merit-order effect. However, the extent of this price effect depends heavily on the specific design – for example, how much reserve capacity is introduced, whether this happens through market-based or administrative mechanisms, and which trigger price is chosen.
At the same time, cost shifting may occur: if reserve plants displace grid-relevant power stations from the market, redispatch costs may rise – ultimately impacting consumers via network charges. Key implementation questions remain unresolved, including how to reconcile market revenues with existing standby payments, how to design transparent clawback mechanisms, and how to prevent strategic behavior by market participants.
In the long term, there is a risk that the reintroduction of reserve capacity suppresses scarcity prices. These price signals are essential for investment in new flexible generation and storage. In addition, the profitability of existing assets may be negatively affected, potentially leading to further decomissioning of power plants or their transfer into the reserve. As a result, costs could increasingly shift from the market to regulated network charges. The capacity market announced in the coalition agreement may provide a solution. However, capacity payments will need to be higher if scarcity prices – and thus market-based investment incentives – are limited.
Whether the temporary market deployment of reserve plants ultimately leads to cost savings depends on the details of its design, its integration into a coherent market framework, and the ability to avoid introducing new distortions.
