Capacity Mechanisms in the EU: Nationalizing Energy Security?

Since the introduction of the first liberalization directive, the European electricity market has been undergoing a process of continuous transformation which has put the electricity systems of the Member States under condition of permanent shock. The incompatibility of the still persisting functioning principles of the electricity markets with the changed market reality have resulted in serious market failures which negatively affect investment climate and therefore pose a risk towards energy security in the EU.

Being a sensitive issue which tends to be politicized very easily, the risk of deteriorating energy security has been addressed by the Member States mainly on the national level with the capacity mechanisms being one of the widespread solutions. The inconsistent approach by the Member States did not trigger any active response from the European Commission until recently, in light of the current geopolitical tensions, Europeans had to reconsider their energy dependency on non-EU suppliers and therefore rethink their approach towards security of supply from the European perspective. Despite its tremendous relevance the European Energy Union Package might represent a too slow response in this regard, as the national initiatives have been already unilaterally set in motion.

In order to answer the question whether capacity mechanisms represent a cure of the energy-only market or an impediment towards the IEM integration, this policy paper draws attention towards the potential impacts of the national interventions on the European level and comes to the following conclusions:

• Only compatible capacity mechanism designs with explicit participation models will allow for an effective ‘co-existence’ of the national capacity mechanisms and the European internal energy market.

• European Energy Union is about optimization of resources and infrastructure on the European level. The realization of the need of co-operation in addressing the current problems is still missing among the Member States.

• Protection of the old national equilibrium will not solve the issues faced by the Member States but only postpone the progress towards a more sustainable European energy sector.

Jekaterina Grigorjeva works as Senior Manager in Energy and Climate Policy at the Federation of German Industries, she formally worked for the Jacques Delors Centre.

Image: CC Ian Sane, source: flickr.com