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The impact of renewables on the energy markets–falling wholesale electricity prices and lower investment stability–are apparently creating a shortage of energy project financing, which in future could lead to power supply shortages. Governments have responded by introducing payments for capacity, alongside payments for energy being sold. The increasing use of capacity mechanisms (CMs) in the EU has created tensions between the European Commission, which encourages cross-country cooperation, and Member States that favour backup solutions such as capacity markets and strategic reserves. We seek to trace the influence of the European Commission on national capacity markets as well as learning between Member States. Focusing on the United Kingdom, France and Poland, the analysis shows that energy security concerns have been given more emphasis than the functioning of markets by Member States. Policy developments have primarily been domestically driven, but the European Commission has managed to impose certain elements, most importantly a uniform methodology to assess future supply security, as well as specific requirements for national capacity markets: interconnectors to neighbouring countries, demand side responses and continuous revision of CMs. Learning from other Member States' experiences also play a role in policy decisions.

The impact of renewables on the energy markets–falling wholesale electricity prices and lower investment stability–are apparently creating a shortage of energy project financing, which in future could lead to power supply shortages. Governments have responded by introducing payments for capacity, alongside payments for energy being sold. The increasing use of capacity mechanisms (CMs) in the EU has created tensions between the European Commission, which encourages cross-country cooperation, and Member States that favour backup solutions such as capacity markets and strategic reserves. We seek to trace the influence of the European Commission on national capacity markets as well as learning between Member States. Focusing on the United Kingdom, France and Poland, the analysis shows that energy security concerns have been given more emphasis than the functioning of markets by Member States. Policy developments have primarily been domestically driven, but the European Commission has managed to impose certain elements, most importantly a uniform methodology to assess future supply security, as well as specific requirements for national capacity markets: interconnectors to neighbouring countries, demand side responses and continuous revision of CMs. Learning from other Member States' experiences also play a role in policy decisions.

We acknowledge the publication of the Interim Report and the Annexed Staff Working Document as a huge contribution to enhance the design of Capacity Remuneration Mechanisms (CRMs) so as to minimise their «friction» with the Internal Energy Market (IEM). In order to fully seize the potential benefits of market integration, a minimum level of coordination in the security of supply dimension is necessary. Most of current CRM designs implemented or under proposal in the European Union are still based on an autarkic vision, according to which domestic resources must be capable of guaranteeing the security of electricity supply on their own. However, capacity remuneration mechanisms are going to critically condition the investments that will «shape» future European power sectors (indeed, this is why they are ultimately designed for). If cross-border resources are not allowed to fully participate in CRMs in a level playing field with domestic resources, each system will develop in isolation and the scope of the Internal Energy Market will be limited to a short-term market for «left-overs». The Interim Report and the Annexed Staff Working Document provide a much-needed assessment on the introduction of CRMs in the European Union, as well as a platform for discussion and creation of a common understanding of the main involved problems. We share the assumptions on which the report is based and we agree with most of the tentative conclusions. Nevertheless, we have some comments, mainly regarding cross-border participation in CRMs, but touching also other issues, which we would like to share with the editors. Most of our inputs are related with eligibility and product design, according to the terminology used in the documents under consultation. Before entering into details, we briefly summarise hereunder our views on cross-border participation and other CRM-design issues. ; info:eu-repo/semantics/draft

An increasing number of recently built, high-efficiency combined-cycle gas turbine (CCGT) power plants, are being mothballed or prematurely closed across the European Union as profits from gas are eroded by decreased electricity demand, changing fuel prices and depressed carbon prices. This paper examines how major EU utilities are reacting to the impacts of market and policy factors upon the profitability and value of CCGT assets, how these stranded assets are affecting firm value and strategy, and what implications may exist for energy market design, low-carbon energy and climate policy. Market research and financial information is used to quantify the scale and scope of competitiveness impacts on gas-fired power assets and financial impacts of stranded CCGT assets in terms of asset impairment charges, firm valuation, credit ratings and debt quality. A meta-analysis of developments occurring in 2013 illustrates that stranded CCGT assets are playing an important role in the development and implementation of capacity remuneration mechanisms in different EU member states. We find that governance and policy gaps exist at national and EU levels regarding the appropriate treatment of stranded assets. Careful thinking is required on how the economic costs of stranded assets should be valued in the design and implementation of different capacity policies. Examining the potential competitiveness impacts of different capacity mechanisms and their relationships to stranded assets stands is an important research priority.

The European Single Market for Electricity aims to promote trade and competition in electricity generation across the EU, with investment signals for new generation capacity and interconnection coming from zonal electricity prices reflecting scarcity value. However, a growing number of EU Member States have implemented – or are in the process of developing – national Capacity Mechanisms in order to ensure future security of supply within their own borders, which may distort the cross-border trade of energy across interconnectors and reduce total welfare. This local view of energy security is in response to internal technical and economic constraints and a perceived inability of cross-border electricity flows to be a reliable source of capacity at times of maximum stress, in favour of self-sufficient approaches. A number of routes are available to resolve this conflict through a mechanism to permit cross-border participation of generators in local Capacity Mechanisms, but this requires resolution of a number of complicating factors, not least a means for properly allocating transmission capacity without introducing further distortions to the energy market. Alternative solutions could be enacted at an EU-level, such as through the alignment of Capacity Mechanisms to a common model, or the introduction of an EU-wide single Capacity Mechanism, but the current regulatory focus appears to remain on resolution of such issues at a national level.

Emil Kraft analyses the French capacity remuneration mechanism design and develops a capacity market model that draws upon an agent-based simulation. The capacity mechanism was implemented to mitigate the imminent risk to the security of supply and to complement the electricity markets. The author applies his model to real data in three scenarios and assesses both the impact of the mechanism on the development of the French generation fleet until 2050 and the evolution of the capacity prices. The key conclusions consist of the effectiveness and the controllability of the implemented mechanism. As a complement to functioning electricity markets it is able to provide sufficient investment incentives and thus to guarantee the French security of supply in the future. Contents " Overview of the French Electricity System " Decentralised Capacity Mechanism " Modelling a Decentralised Capacity Market " Results and Sensitivity Analyses " Cross-Border Participation and Market Coupling Target Groups " Lecturers and students of energy economics, industrial engineering, economic policy and business information technology " Experts working in the fields of energy economics, energy trade and policy consulting The Author Emil Kraft works as a research fellow at the Chair of Energy Economics at the Karlsruhe Institute of Technology (KIT) in the research group "Energy Markets and Energy System Analysis". His research focuses on future market design and the integration of renewable energies into the electricity markets and the future electricity system

This article addresses the functioning of capacity remuneration mechanisms (CRMs) in an integrated European electricity market featuring a high share of intermittent renewable energy sources. We first highlight the close ties between flexibility provision and generation adequacy, and explain why these two issues must be considered concomitantly when developing CRMs. We then show that while Member States have different needs, addressing security of supply in a purely national way will be expensive. We finally identify three prerequisites for a workable Europeanization of national generation adequacy mechanisms: a consistent assessment of adequacy needs and cross-border resources, a dedicated method to allocate risks and remuneration of cross-border resources contribution, and a definition of rights over the system resources at times of extreme scarcity.