Italy’s 2017 electricity capacity market early start delayed – sources

Italy’s plan for early adoption of an electricity capacity market under simplified rules is unlikely to be implemented by 2017 because the specifics are being reviewed at European level to check for possible state-aid implications, ICIS understands.

But the government is still looking to kick-start a simplified capacity market before launching the fully-fledged scheme, set for 2019-2020, sources familiar with the matter said.

Under the capacity market, transmission system operator (TSO) Terna will auction reliability call options on an annual basis, which will translate into payments linked to available capacity of plants rather than their actual electricity output.

Officially, payments for capacity under the new system are not expected in Italy before 2019. However, Italian regulator AEEGSI advised the government in March to adopt a simplified form of the scheme to bring forward the capacity market’s “effects of favouring competition and guaranteeing the safety of the [electricity] system”.

AEEGSI proposed a 2017 adoption of the new market under simplified rules. These would include a reduction in the number of auction bids each production unit can submit from 10 to five, an increase in the minimum price reduction from the auction base price from 5% to 10%, and a reduction of auction sessions from 21 to 11. Restrictions on the type of collateral needed to take part in the auctions would also be eased (see EDEM 12 March 2015).

AEEGSI maintained that a 2017 start would have required a round of auctions by the end of September of this year, based on technical indications from Terna.

State aid?

“At the moment the whole matter of an early start to the capacity market has been sent by the government to the EU Commission for review. They want to make sure the scheme would not fall into the state aid discipline before adopting it,” one source familiar with the matter said.

“The September deadline is clearly out of the question by now. In fact, it’s unlikely that any launch will happen before the end of 2015,” the source added. This would likely delay the 2017 start of the simplified scheme.

The Italian economic development ministry, which overseas the introduction of the model, failed to respond to repeated requests for comment or confirmation.

The adoption of capacity markets is being supported by a number of energy regulators across Europe including Italy’s AEEGSI, which sees the market as an opportunity to provide producers with an efficient price signal on the value of future generation capacity, nurturing security of supply in the process (see EDEM 18 September 2015).

Elsewhere in Europe, the UK government published the parameters for a second capacity market auction that will take place in December this year after running the first round of auctions in December 2014 for capacity procurements in 2018-2019 (see EDEM 29 June 2015).

However other European states have adopted a different approach. The government of Germany, Europe’s largest country by electricity production, is seeking an alternative, energy-only model to preserve security of supply without the need for an interventionist capacity market scheme (see EDEM 15 September 2015). riccardo.patrian@icis.com