Report from the Commission. Final report of the sector inquiry on capacity mechanisms

Europe's Energy Union strategy aims to ensure secure, clean and affordable energy supplies to European consumers. Despite important progress towards these objectives, security of electricity supply is a growing concern in an increasing number of Member States. To prevent possible electricity shortages, some Member States have, or plan to put in place, different types of capacity mechanisms. These mechanisms should remunerate electricity generators and other capacity providers, such as demand response operators, for being available in case of need.

Public support to capacity providers risks creating competitive distortions in the electricity market and in principle constitutes state aid. Capacity mechanisms often provide subsidies only for national capacity providers, ignoring the value of imports and distorting investment signals. This means many of the benefits of an open and well-connected Internal Energy Market are lost and costs for consumers increased. These mechanisms also sometimes favour certain technologies or market players without objective justification, or prevent competitive new entrants from becoming active on the electricity market. This distorts competition, risks jeopardising decarbonisation objectives and pushes up the price for security of supply. On 29 April 2015, the Commission therefore launched a state aid sector inquiry to gain insights into the need, design and market impacts of capacity mechanisms.

This Final Report presents the main findings of the inquiry, with further detail in the annexed report. It provides insight into when capacity mechanisms involve state aid and how the Commission views capacity mechanisms in relation to state aid rules. In applying these rules, the Commission aims to ensure that Member States introduce capacity mechanisms only when needed, and in such a way that the internal energy market is not carved up into national markets at the expense of consumers and potentially climate objectives.

During the sector inquiry, the Commission services focused on the electricity markets of eleven Member States that have already introduced, or plan to introduce, capacity mechanisms. The Commission services gathered a large amount of information from Member States, energy regulators, associations and market operators, meetings and through two sets of questionnaires addressed to over 200 stakeholders. On 13 April 2016, the Commission published an interim report on the sector inquiry for public consultation. This Report takes account of the 114 replies received on the interim report.

This Report, together with its annexes, is presented together with a package of legislative proposals, as part of the work to create an EU Energy Union with forward looking climate change policy. The package includes legislative proposals to improve the design and operation of EU electricity markets ('Market Design Initiative'), including proposals to improve national generation adequacy policies which build on the findings of the sector inquiry, which should over time reduce the need for capacity mechanisms to guarantee security of supply.

ESO: Background information: State aid: Sector inquiry report gives guidance on capacity mechanisms http://www.europeansources.info/record/state-aid-sector-inquiry-report-gives-guidance-on-capacity-mechanisms/

EUR-Lex: SWD(2016)385: Commission Staff Working Document accompanying the report http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=SWD:2016:385:FIN

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