On Wednesday 7 February, the European Commission authorised capacity mechanisms aiming to guarantee the security of electricity supply in Germany, Belgium, France, Greece, Italy and Poland, considering them to comply with the EU guidelines on state aid and the protection of the environment and on energy, which have been in force since 2014.
In the case of Germany and Belgium, the European competition authority gave its green light to strategic reserves, to be drawn off from certain production capacities from the electricity market to be used only in an emergency, to deal with a serious supply crisis when the markets are experiencing a transitional period or reforms.
The Commission found that Germany and Belgium had clearly defined and quantified the supply security risks to be covered by the strategic reserves: the ongoing reform on the electricity market and the phase-out of nuclear in the former, the high dependency on ageing nuclear infrastructure and imported electricity in the latter.
In both cases, the measures are temporary and fed into by calls for tenders which were open to all types of capacity providers (including demand management operators in times of shortage), ensuring effective competition and limiting costs, the Commission concluded.
As regards Italy and Poland, the Commission authorised market-level capacity mechanisms that would, in light of structural security of supply issues on the electricity markets, pay capacity suppliers for being available to produce electricity or load managers for their availability to reduce consumption.
The Commission felt that Italy and Poland had clearly defined and quantified the risks to be covered by these mechanisms, taking account of possible imports from neighbouring countries: the former demonstrated the risks of a considerable volume of capacity leaving the market and the low likelihood of new investments, the latter deficiencies due to prices that discourage producers from maintaining existing capacity on the market or investing in new capacity.
In the cases, the mechanisms are open to all types of capacity providers (including demand managers, new and existing, national and foreign capacities) and will help to bring costs down for consumers, thanks to regular tenders for the allocation of the capacity markets, the Commission considered.
In parallel, both countries have undertaken to reform the functioning of their electricity markets, the European competition authority adds, reiterating that similar mechanisms have previously been authorised in the United Kingdom, France and Ireland on the basis of the same criteria.
Finally, in the case of France and Greece, the Commission has authorised capacity mechanisms specifically encouraging the suppression of demand, which has the advantage of being faster than supply mechanisms and of being greener, as they help to reduce consumption rather than producing extra electricity, thereby making it unnecessary to build new power stations.
The Commission felt that France had demonstrated the need for this regime in order to breathe new life into the demand management sector, given the extreme peaks in demand anticipated in very cold periods.
In Greece, the existing regime played a key role in the management of crises during the wave of cold of December 2016 and January 2017, and could be necessary again in the near future.
Both measures are temporary and regular calls for tender will help to keep costs down, states the Commission, which authorised a similar scheme in Germany in 2016.
Wednesday’s package of authorisations granted follows the sectorial State aid investigation into capacity mechanisms concluded in 2016 and involving 11 member states.
“Capacity mechanisms can help to safeguard security of electricity supply, but they must be designed so as to avoid distortions of competition in energy markets. I am glad that our close cooperation with national authorities has enabled us to today approve well-designed capacity mechanisms in six EU countries. They will foster competition among all potential capacity providers to the benefit of consumers”, commented the Commissioner for Competition, Margrethe Vestager. (Original version in French by Emmanuel Hagry)