Step by step Capacity markets are one of the pillars of the latest reform of the European electricity system, although historically they have been on the table. Countries such as Belgium, Ireland and France have already implemented them. They were born with the philosophy of ensuring that, in the future, when the electricity mix is mainly or entirely renewable, it will be possible to respond and cover all the electricity demand in the face of a situation that has arisen. For example, if there is a drop in renewable generation (relying on raw materials such as the sun or wind, it is more unstable than gas plants), or because consumption spikes due to a cold storm or a wave of heat Therefore, “firmness” is also sought in moments of possible demand stress, sources from the Ministry of Ecological Transition explain.
The same voices exemplify it like this: “This is one more mechanism that can help us to make people calm even in those most stressful times of the year: in the middle of an anticyclone, for example, in at nine o’clock at night when it’s neither sunny nor windy and it’s cold. Demand soars and that’s precisely when consumers want to be safe.”
It is true that this moment of stress might not happen, but what is paid is, precisely, “security” in case it happens. In other words, it is remunerated so that the demand can be covered without suffering, for example, from a power cut, as was proposed at the beginning. Now, who pays? And, above all, where does the money go?
How do they work?
This remuneration or aid would be received by electricity generators and energy storage facilities. For example, battery plants designed to store solar energy when much more is produced than consumed. The idea is that in exchange for this retribution, in the event of being faced with a moment of stress, the potency is maintained. “Can we afford as a country not to respond to electricity demand? Well, we think not, because the value it costs us to have an additional megawatt is lower than the value of an electricity cut, so it makes economic sense and is justified”, argue from the Ministry of Ecological Transition, those in charge of designing the system. In fact, this was one of the folders that Teresa Ribera, current vice-president for the Energy Transition of the European Union, left in the hands of her successor, the current minister Sara Aagesen.
However, not everyone will be able to participate in this market. The fine print of the regulation that the ministry has put out for public consultation establishes some requirements to be able to participate as a provider of this capacity (and therefore receive the additional remuneration), the conditions under which the service, as well as the remuneration and financing system. The backbone of it all will be supply auctions: by winning one, you undertake the commitment to be available when required by the electricity system operator, in the face of possible problems or moments of tension between demand and supply. Although there will be up to three auctions, the main one could be called in mid-2025.
Storage incentive
In this auction, a power curve (ability to respond to the moment of stress) will be established based on demand forecasts. The one that will stand up better will be the so-called firm power, which means that it can be more easily available to cover the demand at the time of stress.
The key is that the awardees receive a fixed remuneration, so that the price of electricity would be prevented from skyrocketing, as usually happens at the moment. At the same time, it is a way to encourage investment in storage and to develop these systems. It must be remembered that when renewable energy is stored it is because it is not needed and, therefore, the prices are on the floor. Combined cycles will benefit the most, although there are limits. In case of non-compliance, the facility could lose the right to collect and, in addition, penalties are foreseen.
