Capacity Mechanisms : EU or National Issue? Are Capacity Remuneration Mechanisms Helping to Build the Market or Just a Symptom of What Does Not Work ? Actuelles de l'Ifri, October 2012
In a competitive energy system, generation investment choices are let to investors. It is then the responsibility of the market actors to invest and ensure peak, medium and base load generation, based on market perspectives and trends. If through actors" investments the stability of the system cannot be ensured (because, for example, peak generation is not sufficient to satisfy demand), some measures have to be taken. These can have economic and system integrity impacts on neighboring systems, especially if they are connected. This is precisely what is happening in the European electricity market.
While the internal electricity market should be completed by 2014, the adoption by Member States of capacity remuneration mechanisms in an uncoordinated way may lead to new market distortions. Whereas national capacity remuneration mechanisms (CRMs) already exist in several European countries (e.g. Italy, Spain, Sweden), others have taken steps in the past months to implement CRMs (France, UK) or contemplated to introduce them (Germany). After the puzzle of more than 27 different regimes for incentivizing renewables, the same heterogeneity will appear in the capacity markets if no coherent and Europe-wide framework is proposed. While increased interconnections and market coupling will lead to more efficient and liquid markets at regional and EU levels, the opposite will happen if Member States adopt national solutions without looking beyond their borders.
In order to understand why we have come this point, it is essential to start from the roots of the problem and to throw light on some false beliefs.
It would be much easier to blame market liberalization and unbundling or RES integration into the market. The truth is that both measures were important. Timing showed that the RES production is developing very fast and creates local over capacity in some national systems, while when there is no wind or sun, the conventional plants are still needed to supply the customers, ensuring thus a backup function for variable RES.
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