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 power market.

Capacity payments can however be an issue in the EU’s internal electricity market where systems with capacity mechanisms coexist with systems where generators can only rely on their earnings from sales on power markets, so called 'energy-only markets'. It is therefore of paramount importance that capacity mechanisms are only introduced if it is necessary. They are designed  to minimise impact on market functioning. Significantly, 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

A rigorous adequacy assessment is crucial for identifying risks to security of supply. To this end, the Electricity Regulation (EU) 2019/943 requires an enhanced EU-wide adequacy assessment methodology and annual adequacy assessments conducted by the European Network of Transmission System Operators for Electricity (ENTSO-E).

The EU assessment should be based on the latest calculation of future supply-demand scenarios. It should also  take into account 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 Member State or bidding zone. In principle, Member States with perceived adequacy concerns are required to demonstrate this concern based on the EU assessment. 

National implementation plans

The electricity regulation requires all Member States with identified adequacy concerns to develop an implementation plan, in which they set out how they intend to address the root causes of their adequacy problem with 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, the regulatory measures that eliminates distortions and  reforms markets need to be effective and credible for market participants.

Commission opinions and consultations

The electricity regulation also requires the European Commission to assess whether the proposed market reforms are fit for purpose and to issue an opinion within 4 months from the submission of the national implementation plan. The Commission opinions are available in English, German and French, and the national language of the countries.

As part of its assessment, the Commission will open the proposed market reforms for a consultation. If the Commission 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.

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