Towards a regional approach for capacity remuneration mechanisms in Europe

The views expressed in this report are the views of the authors only and do not necessarily represent the views of Compass Lexecon, its management, its subsidiaries, its affiliates, its employees or its clients.

Compass Lexecon experts drafted a discussion paper for EU power utility association Eurelectric on the potential features, benefits, and challenges of different levels of regional coordination for capacity remuneration mechanism (CRM) in Europe.

Situation

In the past decade, many European Member States have introduced capacity remuneration mechanisms (‘CRMs’) in response to concerns over resource adequacy. Depending on their local needs and specificities, Member States have implemented different types of CRMs. While in line with Member States’ national prerogatives, this has led to diverging designs, uncoordinated mechanisms and a patchy implementation of cross-border participation in CRMs. In this context, there is scope for more harmonisation and coordination between mechanisms at the regional level.

Our role

The purpose of our paper is to assess to what extent and under which preconditions increased cooperation on adequacy assessments and contracting mechanisms at regional level deliver higher benefits in terms of costs and security of supply. After portraying the state of play of CRMs, we identify different levels of an approach towards a regional CRM and describe detailed features of these options. We also analyse the potential incremental benefits of a regional CRM approach and identify the implementation challenges and roadblocks. We conclude on concrete and low-regret actions to move towards regional CRM.

Outcome

Our report is timely contributing to the ongoing debate on capacity mechanisms’ implementation, in the context of harmonisation put forward by the new Clean Industrial Deal State Aid Framework (CISAF) published by the European Commission, and of a new wave of CRM implementation across the EU. Our work was presented to policy makers and other key stakeholders during high-profile policy meetings and market design events.

The team

The paper was written by Fabien Roques, Charles Verhaeghe and Clément Cartry.