The rise of capacity mechanisms: are they inevitable in the European Union?

The Royal Institute for International Relations is an independent think-tank based in Brussels. Its interdisciplinary research is conducted in a spirit of total academic freedom. Drawing on the expertise of its own research fellows, as well as that of external specialists, both Belgian and foreign, it provides analysis and policy options that are meant to be as operational as possible.In the early 21st century, many EU Member States established Capacity Remuneration Mechanisms in their electricity markets.They used to be limited to a very small number of Member States, but proliferated due to growing doubts about the ability of liberalised electricity markets to meet the electricity demand in 2020 and beyond.

CRMs provoked many debates, comments and criticisms. Different questions needed to be considered. First, had the market become more unstable to the extent that it required new stabilisation instruments? Second, if the answer to the first question was positive, were there options other than CRMs and were they better? Third, if there were no alternative options, how could CRMs be designed to reduce costs and not hurt competition or free trade? It was difficult to deny that in the context of decarbonisation, there was a need to take measures to compensate the growing insecurity of electricity provisioning. Capacity mechanisms participated in that logic and aimed to provide that compensation.

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