Energy capacity mechanisms may be allowed under state aid, says EU

Under 'capacity mechanisms', power companies are paid to provide back up capacity to protect against electricity blackouts and power shortages.

While this is "clearly an important objective", capacity mechanisms can also affect electricity prices, give undue advantage to some operators and "hinder electricity flows across EU borders", EU competition commissioner Margrethe Vestager said as the Commission published an interim report on the state aid sector inquiry into the mechanisms.  

The Commission launched the inquiry in April 2015, to examine whether these mechanisms ensure sufficient electricity supply without distorting competition or trade.

Over the past 12 months the Commission has analysed information on 28 capacity mechanisms in 11 EU countries: Belgium, Croatia, Denmark, France, Germany, Ireland, Italy, Poland, Portugal, Spain and Sweden.

There have been three main findings from this research, Vestager said.

"First, properly functioning electricity markets should deliver sufficient electricity supplies. If they don't, capacity mechanisms may be necessary but they cannot be a substitute for real market and regulatory reform," she said.

"Second, it is a real concern that many member states studied have not carefully analysed the need for capacity mechanisms before introducing them. Third, capacity mechanisms in many member states seem to benefit only specific energy operators. For example, we see that some capacity mechanisms are only open to specific technologies and to energy operators within the borders of the member state," Vestager said.

Some capacity mechanisms therefore risk being costly for taxpayers and risk creating obstacles to an integrated energy market in Europe, she said.

Capacity mechanisms must not be used as a "quick fix", without considering long term implications, Vestager said. EU countries should be encouraged to look at all options for dealing with capacity problems, and any capacity mechanisms used should be open to all providers to improve competition, she said.

Vestager also encouraged countries to be open to sharing capacity with one another. "A more common approach to security of supply would be valuable, for everyone," she said.

The Commission is now inviting feedback on the issue from EU countries and other stakeholders, and will issue a final report by the end of this year.