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European Commission approves six electricity capacity mechanisms
The European Commission (EC) has approved under EU State aid rules electricity capacity market mechanisms in Belgium, France, Germany, Greece, Italy and Poland, finding that the measures will contribute to ensuring security of supply whilst preserving competition in the European Single Market.
Capacity mechanisms are a security of supply measure to help ensure enough electricity capacity exists to meet high periods of demand. The EC's role is to ensure these do not distort competition in EU energy markets and create higher electricity prices for consumers.
The EU Commissioner in charge of competition policy, Margrethe Vestager, said that the six mechanisms were ‘well-designed’ and would foster competition among potential capacity providers.
The EC says that the six capacity mechanisms comply with its strict criteria for state aid rules, and that while the EU is in the process of reforming its electricity markets to address market failures, they will help provide secures, sustainable and competitive energy.
The Belgian and German capacity mechanisms take the form of strategic reserves, where certain generation capacities sit outside the electricity market for use in emergencies.
Belgium argued it needed a reserve to mitigate the risk from its ageing nuclear fleet, while Germany argued for one while its electricity market is being reformed and it is phasing out nuclear. Both are temporary and capacity will be procured via competitive tenders.
Italy and Poland are to implement market-wide capacity mechanisms to address more structural security of supply issues. These, similar to the UK’s capacity market, will see generators or demand-side organisations compete for payments to generate or reduce consumption. Both countries are suffering from a lack of investment in new power capacity.
Finally, France and Greece are implementing temporary specific demand response capacity markets – which will see consumers paid to reduce their electricity in high-demand periods.
The EC approved a market-wide mechanism covering Ireland and Northern Ireland in November last year. Since then its first auction has seen 9 GW of qualified capacity – most of which is pre-existing gas plant.
