As a follow-up to its paper 'Market Design Policy', the European TSO organisation ENTSO-E has published a paper 'Cross border participation to capacity mechanisms' as a contribution to the current debate. The overall objective is to increase the efficiency and integration of the European system as a whole, through the appropriate consideration of cross-border opportunities.
This policy paper focuses on the compatibility of national capacity mechanisms and on the design of cross-border participation solutions, presenting both the underlying guiding principles and concrete recommendations. One of the key conclusions is the need for close coordination between all involved parties in neighbouring states to ensure that national capacity mechanisms, where introduced, take into account and reward the effective contribution of foreign generation or demand response, while preserving the integrity of the electricity target model. Governments, regulators, TSOs, and also power exchanges and market parties for some aspects, need to contribute to the design of cross-border participation, where possible on a regional basis.
The ability of the current electricity markets to deliver security of supply objectives along with a sustainable energy mix and affordable prices has been questioned in the face of forecasts of declining system adequacy in several EU countries, leading to the adoption of different policy solutions, including the implementation of national capacity mechanisms.
Capacity mechanisms are designed to increase adequacy by remunerating capacity providers (generators or demand response) according to the capacity they can offer and to the needs of the system. This revenue stream, in addition to the remuneration for the energy delivered, aims at stimulating additional investments and market behaviours to support security of supply.
However, unco-ordinated national actions have raised additional concerns about possible impacts on the European internal energy market (IEM). European transmission system operators (TSOs) play a crucial role in the design and operation of capacity mechanisms, and thus strongly advocate closer co-ordination within a well-defined governance framework that is consistent with the IEM market rules.
Co-ordination between the TSOs, regulators, power exchanges, governments and all other involved parties is particularly important to ensure that market rules with a direct impact on security of supply are consistent with governance frameworks. Clear, transparent and binding rules must be agreed to secure political and public acceptability, especially in the management of simultaneous scarcity situations in two or more neighbouring countries.
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