To most anyone in the world, CRM means Customer Relationship Management. For Belgian politicians, CRM is Something Completely Different..
CRM is a Belgian funding mechanism that uses tax money to fund the construction and maintenance of facilities to produce electricity.
At first, that seems a weird idea. If you want to produce and sell shoe laces, why would you require government funding? If you think
you have a business case, by all means go ahead. If not, find something else to do.
Electricity however, is not shoe laces. Electricity is a Safety-Of-Life product.
Producing electricity is therefore not only about making a profit, it is rather a responsibility towards society.
So why is CRM around?
Le nouveau CRM is an acronym for Capacity Renumeration Mechanism. The word “Capacity” refers to the required installed
power of machines (in MW) capable of producing an amount of electricity on demand (in MWh).
The requirement for the installed power follows from predictions of electricity demand, as well as the availability schedules of existing and future plants.
CRM offers funding as a reward (hence “Renumeration”) to private companies for providing the capacity to produce electricity whenever needed to keep the power grid stable.
This funding is considered as a necessary incentive to lure investors into building power plants. It assumes companies are not inclined to invest in new plants if they have no idea how much the plants will be allowed to produce electricity. Hence the funding carrot.
This approach is wrong. Here’s why.
Due to the current pricing mechanism for electricity (see previous blog), the CRM designers believe that investors consider building a gas fired power plant as backup for intermittent renewables to be a bad business case. In the current state of mind, these plants are necessary to stabilise the power grid
when intermittent renewables are added to the grid.
The bad business case stems from the observation that gas fired plants produce the most expensive electricity, due to the high price of gas. This price is determined by the international and global free market mechanism. It is by no means under control of national or European governments, regardless of what they may believe.
Although CRM is said to target ANY production mechanism, in practice it is only relevant for the construction of plants that are expensive to operate, therefore primarily large gas fired backup plants. And for the record, once more: battery packs do not produce electricity.
The current pricing mechanism is however mis-used to get government funding for maintaining existing installations, such as the old 707 gas turbines used for peak production. Or to invest in new gas fired plants, that can be mis-used to drive up the electricity price
at will.
In practice, investors that own both cheap production plants, such as wind farms and nuclear power plants, and expensive gas fired plants, can mis-use the pricing
mechanism to drive the electricity price up by starting gas fired plants at the expense of nuclear plants or wind farms.
Currently, there is no legal hurdle to prohibit such behaviour.
Investors refuse to invest in a new gas fired plant, if the plant is used for peak production only, even if they would receive a fair mark up. This is because they cannot predict their income as they cannot predict the time their plants will be allowed to operate. Moreover, intermittent use of a gas fired plant increases wear, thus drives up maintenance costs, and plummets the plants overall thermal efficiency. However, in todays practice, it is the plant operator who actually decides when to operate, as he controls more than one production type.
Obviously, the perceived need for CRM is a result of the current electricity pricing mechanism. CRM is the shed, that was build behind the garage, that was build behind the bathroom, that was build behind the kitchen, that was build behind the old house.
So how does BRIGID relate to CRM?
- Does the BRIGID pricing mechanism help? In the BRIGID pricing scenario, each production unit sells its electricity at a predetermined mark-up on its own overall production cost. This means that a gas fired plant has as much economic sense as any other plant, but only on the condition that it can run a determined number of hours per day. Only under that condition, gas fired plants do not need CRM funding to have a meaningful business case. This conflicts directly with the introduction of renewable sources on the grid.
- Assuming the BRIGID proposed pricing mechanism is installed in a mixed production environment, CRM still makes sense. However…
- Only in the BRIGID production scenario, CRM becomes meaningless.
In the BRIGID production scenario, electricity demand is met by derailing just as much thermal energy from the nuclear plants as is needed to supply the electricity grid at a fixed price, taking momentary renewable output into account. The surplus of the thermal energy is used to generate hydrogen, synthetic fuels and chemical products such as fertilisers, which are stored and distributed in the existing network. - Therefore, BRIGID does not need CRM, as BRIGID will operate at full capacity at all times.
Finally,
- EC allows CRM on the condition that all NPPs are shut down. So?
- Will investors that plan gas fired plants as UPS for their own production facilities scrap their investments if CRM is no longer around?