On 13 April 2016, the European Commission published an interim report in its sector inquiry on electricity capacity mechanisms it had launched in April 2015, its first-ever sector inquiry in the State aid area. In its press release, the Commission emphasised that capacity mechanisms can increase security of electricity supply but stressed that many Member States must be more thorough in assessing whether they are necessary and in ensuring a targeted and cost-effective design.

Background

Electricity capacity mechanisms, i.e. Member States taking measures to ensure the availability of sufficient electric energy resources and their treatment under EU State aid law have been widely debated for years. They can encourage investment in new or existing power plants and other measures to ensure adequacy of electricity supply. The ultimate aim is to avoid black-outs and ensure security of electricity supply.

In its inquiry, the Commission assesses whether capacity mechanisms achieve their goal to ensure adequate electricity supply without distorting competition or trade in the EU Single Market. The sector inquiry complements the Commission's Energy Union Strategy to create a connected, integrated and secure energy market in Europe. It is limited to the following eleven Member States: Belgium, Croatia, Denmark, France, Germany, Ireland, Italy, Poland, Portugal, Spain and Sweden.

Before launching the State aid sector inquiry, the Commission had already taken two decisions on electricity capacity mechanisms: in July 2014, it approved the United Kingdom's capacity mechanism. Against this decision, two applications for annulment are currently pending at the General Court of the EU. Further, in October 2014, the Commission decided that an interruptibility service for the electricity system in Greece and its financing did not constitute State aid.

What steps have already been taken?

On 29 April 2015, the Commission launched its State aid sector inquiry into electricity capacity mechanisms. It sent information requests to over 200 actors, including public bodies, energy regulators, network operators and market participants commercially active in the eleven Member States subject to the inquiry.

On 13 November 2015, the Commission opened two separate formal investigation procedures under State aid rules against France, one about plans to remunerate electricity capacity in a country-wide capacity mechanism and another one regarding a tender for a new gas-fired power plant in Brittany.

Interim report of the electricity capacity mechanisms sector inquiry

On 13 April 2016, the Commission published an interim report of the sector inquiry, as well as an extensive staff working document. The Commission says it received 124 replies to its requests for information. Based on these, it found 28 capacity mechanisms and categorised them in six different types. Amongst those, the most prevalent appears to be a strategic reserve, by which the State pays specific power plants to start operating in case of need.

The Commission sees a general trend towards more open and inclusive mechanisms, which are in principle open to participation from all categories of capacity providers. According to the Commission, to create a true Energy Union and ensure costs for consumers and companies are kept to a minimum, capacity mechanisms should be open to all types of providers, domestic or foreign, regardless of technology.

However, the Commission's interim report also points to a lack of proper and consistent analysis by many Member States of the actual need for capacity mechanisms. In the Commission's view, it also appears that some capacity mechanisms in place could be better targeted and more cost effective. The Commission stressed that these findings did not prejudge the Commission's assessment of the compatibility with EU state aid rules of any individual capacity mechanism, in particular based on its 2014 Guidelines on State aid for environmental protection and energy.

Next steps

The Commission's interim report and staff working document will be open for public consultation until 6 July 2016. Member States, stakeholders in the electricity sector and others are invited to submit comments. The Commission expects to publish a final report on the results of the sector inquiry later this year.