Meeting adequacy needs in a modern electricity system: Design principles for Capacity Remuneration Mechanisms

Capacity remuneration mechanisms (CRMs) are an increasingly important feature of the electricity market as a way of ensuring system adequacy. In this position paper, Eurelectric sets out its views on key considerations for developing CRMs to ensure that they deliver value for money, whilst ensuring they efficiently address identified adequacy concerns.

CRMs should:
- Be subject to competitive bidding, be non-distortive and support long-term contracting. They should remain open to all technologies capable of contributing to system adequacy on a non-discriminatory basis.
- Address national system needs, promote interoperability, and facilitate a level playing field for cross-border participation across European markets.
- Have any associated costs allocated in a fair, predictable and transparent manner.

While responsibility for security of energy supply remains primarily a national competence, progress towards a well-designed European target model for capacity remuneration mechanisms through the CISAF rulebook could deliver significant benefits for the electricity system, through reducing overall capacity procurement requirements and costs through competition and a reduced risk of overprocurement, as well as reducing the administrative burden of compliance with heterogenous national CRM designs for market participants.

Eurelectric highlights areas where greater harmonisation of European CRM methodologies may have a positive impact, for example the methodology for calculating derating factors, whilst noting the importance of ensuring that any final outputs must reflect national sensitivities.

Finally, Eurelectric proposes a set of low-regret options that the European Commission and Member States should consider for improving regional coordination on adequacy. This should include best-practice sharing and the identification of barriers to regional integration of CRMs, where requested by Member States.

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