European capacity mechanisms infographic

The European landscape of electricity capacity mechanisms and reserves is being extended and re-developed, but while some level of uniformity is emerging, no regional approach is in sight.

ICIS takes an overview of the efforts by governments to tackle market failures and shore up security of supply by paying capacity providers for availability.

NO REGIONAL APPROACH

The UK-model of centralised capacity auctions is proving increasingly popular, however, German and Nordic governments are showing a preference for reserves.

Capacity payments based on administratively-fixed capacity prices, as exists in Spain, Portugal, Italy, Ireland and Greece, are largely being phased out. Instead, market-wide auction systems are being introduced, in which capacity prices are determined through a competitive bidding process. These may also come in the shape of strike price agreements, also known as reliability options.

Reserves may involve the use of a bidding process but are only open to capacity that has been withdrawn from the market, in the interest of limiting market distortion.

The French model of capacity obligations, establishing a separate market for capacity certificates on broadly the same lines as the EU emissions trading system, is at odds with the prevailing trend.

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