The European Commission (EC) this April launched an extensive investigation into subsidies that 11 European governments provide to utilities to ensure future power reliability, saying it is concerned that the measures may distort competition.
The sector inquiry into capacity mechanisms is the first under European Union (EU) state aid rules introduced in May 2012, which prohibit government aid unless justified by reasons of general economic development.
The EC said it recognizes that capacity mechanisms are designed to fill expected capacity gaps, encourage investment in new power plants, and ensure that power plants continue to operate, providing enough capacity to avoid blackouts.
But, “typically, capacity mechanisms offer additional rewards to capacity providers, on top of income obtained by selling electricity on the market, in return for maintaining existing capacity or investing in new capacity needed to guarantee security of electricity supplies,” it said. Depending on how they are implemented, capacity mechanisms could potentially fragment the EU single market, distort competition by favoring certain producers or types of technology, and create barriers to trade across national borders, it added.
The sector inquiry will initially focus on Belgium, Croatia, Denmark, France, Germany, Ireland, Italy, Poland, Portugal, Spain, and Sweden. However, the EC said that it may expand the sample of member states, depending on preliminary results. It will also seek details from generators, power suppliers, and network operators. A draft report is expected at the end of the year and a final report by the summer of 2016.
The bulk of Europe’s generators are seemingly on board with the idea that capacity markets must evolve from national to regional solutions. According to Hans ten Berge, secretary general of industry group EURELECTRIC, “capacity markets should strengthen rather than undermine ongoing efforts to complete the Internal Energy Market. We therefore urge policymakers to make sure that capacity markets go beyond national borders. In addition, capacity markets should follow a set of basic design features: they should be market-based, technology-neutral, open to new and existing plants, and open to generation, demand response and storage.”
—Sonal Patel, associate editor