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Title: Capacity Remuneration Mechanisms - Implementations in Europe and Implications for the European Internal Energy Market
Authors: Höschle, Hanspeter
Issue Date: 27-May-2015
Host Document: pages:1-6
Conference: Cigré symposium: Across Borders - HVDC Systems and Markets Integration location:Lund, Sweden date:27-28 May 2015
Abstract: Capacity Remuneration Mechanisms (CRMs) are implemented in European countries to help to achieve national generation adequacy targets. In contradiction to the European harmonization
process towards the Internal Energy Market (IEM) national CRMs may introduce distortion and
implicit competition of market designs. By remunerating capacity, CRMs introduce additional
revenue streams based on availability (in €/MW). The objective to reach a European-wide
economically efficient generation mix might not be reached due to differing investment signals
originating from different market designs. The harmonization process of short-term energy
markets based on energy output, remunerated in €/MWh, makes use of interconnection capacity
to exchange energy between market areas. This causes prices to converge prices if
interconnection capacity is sufficient. Consequently, there is an interaction between
implemented market designs, with or without CRMs, and the need for interconnection capacity.
While for harmonized short-term energy-based markets the use of interconnection lines is
common, cross-border participation and the usage of interconnection lines for CRMs is mostly
unexploited.

Two recent examples of national CRMs are the Strategic Reserves built up in Belgium
starting from the winter 2014/2015 and the Capacity Market held for the first time in November
2014 in the United Kingdom. In the first stage both mechanisms only aim at capacity located
within the national borders. With respect to the exploitation of cross-border capacity both
implementation only consider the availability of interconnected capacity in the determination
of the demanded volume of capacity, i.e. the expected contribution of interconnection capacity
in time of system stress is taken into account. However, the value of the contribution of
interconnected capacity to the national generation capacity can only be assessed if market-based
cross-border participation is implemented.
Publication status: published
KU Leuven publication type: IC-p
Appears in Collections:ESAT - ELECTA, Electrical Energy Computer Architectures

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