Energy – State Aid: capacity mechanisms
On November 30, 2016, the final report on capacity mechanisms was published by the European Commission.
The EC concludes, about these mechanisms, that Member States have not validly assessed them before introducing them.
Subsequently, guidelines for safeguarding security of supply while minimising competition distortions are suggested:
1°) Capacity mechanisms must be accompanied by appropriate market reforms
It is observed that most Member States have yet to implement appropriate market reforms to reduce or even eliminate the need for a national capacity mechanism. Member States are therefore asked, before introducing capacity mechanisms, to reform their market.
2°) The need for a capacity mechanism must be demonstrated
It must be concluded that Member States’ assessments of the security of supply situation are insufficiently thorough and not always based on an economically justifiable target for security of supply.
3°) Capacity mechanisms must be fit for purpose and open to all capacity providers
The inquiry has found that the design of most capacity mechanisms could be significantly improved.
Firstly, the mechanism chosen must match the problem identified. Thus, for example, it is noted that transitional measures, such as strategic reserves, are more suited for dealing with temporary adequacy problems and the best solution will probably be to improve grid connections.
Secondly, the price paid for capacity must be determined in a competitive process.
Thirdly, capacity mechanisms should also be open to providers in other Member States. This will provide incentives for investment in interconnectors and generation capacity in other Member States and reduce system costs.
4°) For the future, new plans of Member States to introduce capacity mechanisms will be analysed considering the information included in the report.
Associated areas of specialisation: Energy