European Commission warns on capacity mechanisms
Brussels, 17 September (Argus) — The European Commission is poised to warn member states against “poorly designed” capacity mechanisms, arguing that they could fail to ensure security of supply and throw up barriers in the EU's internal energy market.
Policy makers have advocated capacity mechanisms as a means of ensuring sufficient gas-fired power generation capacity remains available to offset the intermittency of renewable supply despite unfavourable generating economics for gas-fired plant.
“Poorly designed capacity mechanisms do not ensure generation adequacy or security of supply but rather distort investment signals,” the commission said in a leaked policy document tentatively scheduled for publication in October.
The document examines progress in moving towards a single energy market. It paints EU policy as having led to more liquid and transparent wholesale energy markets over the past decade. “With ever more trading between gas companies, the growth of trading platforms — gas hubs — has been impressive,” officials write.
On the other hand, capacity markets may interfere with cross-border trade and competition closing off national markets from generation elsewhere in the EU. “Nationally-based capacity mechanisms can increase costs for all member states by preventing best use of generation and flexibility across borders.”
EU officials call on member states, before introducing capacity mechanisms, to carry out a full analysis on any lack of investment in generation. Capacity mechanisms are considered by the commission to be public service obligations and subject to EU competition control as well as state aid rules. Any such intervention should be proportional and limited in time, the document argues.
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