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EU approves capacity mechanisms for Belgium, France, Germany, Greece, Italy and Poland

By February 8, 2018Industry News

The European Commission stated that capacity mechanisms in these five electricity markets are in line with EU state aid rules, and that all of the mechanisms are “well-designed”. SolarPower Europe says further supporting most polluting power generation forms through capacity mechanism simply does not make sense anymore.

The European Commission (EC) has ruled that all of the electricity capacity mechanisms submitted by Belgium, France, Germany, Greece, Italy and Poland are in compliance with EU state aid rules.

The EC said that all of the six schemes are “well designed”, as they will enable fair competition among all potential capacity providers to the benefit of consumers and the European energy market.

As for the schemes in Germany and Belgium, the EC stressed that it has authorized a mechanism based on strategic reserves. This means that these two countries will be allowed to maintain electricity generation capacity outside the power market that can be utilized only in case of emergencies. The Commission stressed that it has already identified security of supply risks in both countries, and that the reserves will be chosen through a procurement process. The new reserves, however, will be only provisional, the EC stated, and will be removed after market issues in each country are resolved.

As for Italy and Poland, these two countries will introduce market-wide capacity mechanisms, which are usually designed for power systems with structural security issues for power supply. This kind of mechanism may be particularly favorable to traditional power sources, as it allows capacity providers to be paid just for being available to generate electricity. The EC, however, said that both schemes will be open to all types of capacity providers, including demand response, existing and new capacities, domestic and foreign. The Commission, on the other hand, has not discounted the idea that both countries may also consider possible imports from neighboring countries. Both countries, however, were urged to implement new reforms to improve their respective electricity markets.

In the case of France and Greece, the EC has approved a capacity mechanism based on demand response. This kind of scheme, which is mainly conceived to reduce power consumption, pays customers to lower their power consumption in hours when electricity is scarce. The Commission said that the two schemes will also be temporary, and that support for both will be awarded through tenders.

In a statement to pv magazine, SolarPower Europe has criticized the approval of the six mechanisms. “We must avoid, ” the association stated, “that state aid, in the form of capacity mechanisms, is used to artificially extend the lifetime of high-emitting CO2 power plants.”

“This clearly goes against the EU’s climate and energy objectives. SolarPower Europe supports a 550g CO2/kWh carbon criterion in capacity mechanisms, which ensures that additional state aid for higher CO2 emitting power plants is not extended. Today, we have clean, affordable and secure supply alternatives such as solar available; it simply does not make sense anymore to support the lifeline of the most polluting power generation forms,” SolarPower Europe added.

Capacity mechanisms are said to be necessary to ensure power supply during periods of low power production from solar and wind and high electricity demand.

These schemes, however, have also the capacity to distort internal electricity markets, while also enabling the survival of “predictable” but old and polluting power plants. The Commission, in its Clean Energy Package 2020-2030, which is also known as the Winter Package, has drafted the new principles upon which capacity schemes should be conceived. Although the EC admitted that the EU power market is generally characterized by an over-supply of capacity, it has also recognized the need of capacity schemes in those markets where the provision of reserve generation capacity is economically viable.

On the other hand, the EC has also excluded the possibility of an EU-wide capacity mechanism, as currently “only limited amounts of electricity can flow across borders, due to limited interconnection capacities”. As a countermeasure, the EC recommends that these mechanisms should be open to capacity providers in neighboring member states, in order to support “investment in domestic and foreign capacity and in interconnection, as well as to reduce system costs.”

Emiliano Bellini