Capacity remuneration mechanisms in Europe

The introduction of capacity remuneration mechanisms is being intensively discussed among European decision makers, as concerns about generation adequacy in the electricity sector are growing among stakeholders. Different mechanisms have already been implemented or will be introduced in the near future in several European countries. This policy brief focuses on selected experiences in Belgium, France, Spain, Sweden and the UK. The implementation of capacity remuneration mechanisms yielded mixed experiences so far, thus making them subject to repeated adjustments. Although the mechanisms seem to have achieved their goal of purchasing the targeted capacity volumes in different auctions, their efficiency has not yet been sufficiently assessed. While on the one hand some mechanisms are removed again (eg. capacity payments in Spain or the strategic reserve in Sweden), on the other hand new mechanisms are introduced (e.g. decentral obligation in France). The introduction of capacity remuneration mechanisms, however, should go alongside a Europe-wide coordination to avoid market distortions, as the introduction of a mechanism can interfere with the ongoing process of an integrated European electricity market and hinder cross-border electricity trading. At least the participation of interconnectors or capacities from non-domestic areas should be admitted within national mechanisms