Capacity Mechanisms (CMs), which have been part of the electricity market design in several European countries, seek to ensure resource adequacy by providing incentives to capacity providers – namely generation, storage, and demand side response assets. These mechanisms help address the risk of supply shortages, especially during periods of peak demand or system stress.

While CMs were formerly seen as last resort and temporary tools, the recent European Electricity Market Design (EMD) reform recognised them as a possible structural element of electricity markets. However, further improvements are needed in the European regulatory framework to facilitate a simpler and quicker process for introducing, reforming or prolonging CMs. This would enable Member States to address adequacy concerns and additional system needs in a timely manner. In addition, as the energy system evolves, it is critical to ensure that CMs not only address immediate resource adequacy concerns but also align with broader objectives such as decarbonisation, market efficiency, and cross-border integration.

Against this background, ENTSO-E has developed a Policy Paper “The role of Capacity Mechanisms to enable a secure and competitive energy transition”. The paper identifies key challenges, explores alternative design options, and ultimately offers actionable, evidence-based recommendations to guide the future development of Capacity Mechanisms. 

By engaging with policymakers and stakeholders, ENTSO-E aims to support informed decision-making to improve the effectiveness and sustainability of CMs.

Read the Short Summary and the extended Policy Paper