04.12.2021 18:01Capacity mechanisms | Energy
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Capacity mechanisms
Capacity mechanisms enable power plants to be available for
generating electricity when needed. In exchange, the mechanisms
provide payments to these power plants. These capacity payments are
in addition to the earnings power plants gain by selling electricity on the
energy market.
However, capacity payments can be an issue in the EU’s internal
electricity market where systems with capacity mechanisms coexist with
systems where electricity producers can only rely on their earnings from
sales on power markets, so-called 'energy-only markets'. It is therefore
very important that capacity mechanisms are only introduced if
necessary. They are designed to minimise the impact on market
functioning. They also need to ensure that the mechanism is
proportionate to the underlying adequacy problem so that the available
and expected energy capacity is sufficient to meet demands at all times.
Generation adequacy
More intermittent renewable energy is changing the structure of power
generation capacity. This is why generation adequacy, thus supplydemand
balance, is a key tool to assess the security of supply in an
electrical system. Therefore, a rigorous adequacy assessment is crucial
for identifying risks to security of supply.
To this end, the EU Electricity Regulation requires an enhanced EUPAGE
CONTENTS
Generation adequacy
National
implementation plans
Annual monitoring
reports
Commission opinions
and consultations
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04.12.2021 18:01Capacity mechanisms | Energy
Page 2 of 3https://ec.europa.eu/energy/topics/markets-and-consumers/capacity-mechanisms_en
wide adequacy assessment methodology and annual adequacy
assessments conducted by the European Network of Transmission
System Operators for Electricity (ENTSO-E). Accordingly, ACER
published a Decision on the European resource adequacy assessment
(ERAA) in October 2020.
The EU assessment should be based on the latest calculation of future
supply-demand scenarios. It should also consider the availability of
renewable energy sources, demand side flexibility and cross-border
infrastructure in times of system stress. The EU adequacy assessment
is required to cover every EU country or bidding zone. In principle,
countries with perceived adequacy concerns are required to
demonstrate this concern based on the EU assessment.
National implementation plans
The electricity regulation requires all EU countries with identified
adequacy concerns to develop an implementation plan. These plans set
out how they intend to address the root causes of their problem through
market reforms. This requirement reflects the recognition that markets, if
well designed, free of regulatory distortions and sufficiently connected to
the EU electricity grid, can provide the right amount and type of capacity
to meet any demand.
Capacity mechanisms should only be introduced to address residual
concerns, such as problems or circumstances that cannot be resolved
by market reforms alone. Once the residual concerns are solved and
market reforms have started to work, adequacy problems are expected
to decrease and ultimately disappear. To enable this, regulatory
measures that eliminate distortions and reform markets must be
effective and credible for market participants.
Annual monitoring reports
All EU countries with identified adequacy concerns are required to
monitor the application of their implementation plans and publish the
monitoring results in annual monitoring reports. The Commission
provides guidance for preparing these reports.
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This assessment of the implementation process is meant to ensure that
the market reform plans are properly implemented. The first reports
were submitted to the Commission in 2021. The Commission will review
the monitoring reports and issue a formal opinion on the reform process.
Commission opinions and consultations
The electricity regulation also requires the Commission to assess
whether the proposed market reforms are fit for purpose and to issue an
opinion within 4 months from submitting the national implementation
plan.
As part of its assessment, the Commission will open the proposed
market reforms for consultation. If it concludes that the proposed
reforms do not sufficiently address the problems underlying the
adequacy concern, it can propose necessary amendments to the
implementation plan.
The table below contains links to the opinions and the consultations on
the implementation plan, per Member State and language, when
relevant.
Open or close table
Published: 22 April 2020
Last update: 1 December 2021