State of play of European​ Capacity Mechanisms​

As renewable energy sources (RES) increase and nuclear power phases out in some regions, the need for adequate installed capacity becomes critical. This shift, coupled with the electrification of services, has led to increased electricity demand and the "Missing Money" problem, where revenues from electricity sales are insufficient to cover the costs of peak production units.

Capacity Mechanisms are designed to address these challenges by providing financial incentives to capacity providers, ensuring they remain available to meet demand, particularly during peak periods or unexpected events. The study outlines five types of CMs used in Europe: strategic reserves, capacity obligations, capacity auctions, reliability options, and capacity payments. These mechanisms are categorized into volume-based and price-based approaches, each tailored to specific national energy objectives and market conditions.

The study highlights the diversity of CMs across Europe, reflecting differences in production and consumption patterns, geographical constraints, and energy network organization. It provides an analysis of CMs in five countries—Belgium, France, Great Britain, Poland, and Germany, illustrating varied approaches and outcomes. For instance, Belgium's CM has successfully procured additional capacity, reducing the Loss of Load Expectation (LOLE) to an expected 3 hours/year. 

Looking ahead, the study raises questions about the future of CMs. It explores the challenges CMs face in a context where production and consumption patterns rapidly change while the CMs should provide sufficient guarantees for producers. The influence of the further integration of the European electricity and balancing markets and the compatibility of an harmonization and the respect of national specificities are also questioned.