Black-Out Concerns Against Markets: Capacity Mechanisms in European Electricity Markets

The European energy market was envisaged as a power-only market, but this is visibly changing. An increasing number of countries are introducing or considering to introduce capacity mechanisms, justifying this move with the need to prevent blackouts. Capacity mechanisms are measures that offer additional rewards to capacity providers in return for maintaining existing capacity or investing in new installations to generate electricity. These forms of remuneration are not based on the actual energy produced but rather on maintaining available capacity for moments when it is needed. The ongoing ‘green energy’ transition contributes to explain the development of capacity mechanisms the reason. The expansion of renewables across Europe has inflicted a serious blow on the business models of traditional utilities – with ever lower wholesale prices and increasing slice of the cake taken by renewables, utilities providing (mostly fossil) baseload are voicing concern about the long term viability of such a disruptive model. Increasing shares of renewable energy push capacity out of the market, yet it is precisely the availability of that capacity which has allowed integration of renewables in the first place. While the EU encourages the growth in renewable energy, the increasing use of capacity mechanisms has created a conflict between the European Commission and the Member States. The latter favours backup solutions, e.g. capacity markets and strategic reserves – both to provide system stability and support utilities. In contrast, the European Commission has never been fond of capacity mechanisms, as it considers national capacity arrangements to increase the fragmentation of the internal energy market. Rather, the European Commission encourages cross-country cooperation, i.e. countries secure their energy capacity across country borders via interconnectors. Given this conflict, it is interesting to understand the influence of the EU on the developments of national capacity mechanisms: What kinds of capacity mechanisms exist in different European countries? Why have these countries introduced capacity mechanisms? Has the European Union influenced the developments of national capacity mechanisms and, if so, how? To respond to these questions, we draw on theories of Europeanisation and compare four? Member States: UK, France, Germany, Poland and Sweden. The comparison is important because there is a lack of comparative studies in the Europeanisation literature, which is dominated by single case-studies.