In April 2016, the Competition Directorate of the European Commission issued an interim report of their sector inquiry into capacity mechanism gathering information on existing capacity mechanisms across 11 member states.
The report builds further on the Energy and
Environmental state aid guidelines that became applicable mid-2014 by taking a
restrictive view on the mechanisms compliant with competition law.
Two models are highlighted as possible suitable tools
for member states to guarantee security of supply, strategic reserves and
centralized/decentralized capacity mechanisms with cross-border participation.
The annex 2 of the report includes a framework for cross-border participation
that favours a participation of generators through availability products.
Importantly, the report warned against member states replacing scarcity pricing
with capacity mechanisms.
The final report is due for the Autumn taking into
account the comments from the members states and stakeholders that have until 6
July to send their input.
Fortum's key messages
In its response to the consultation, Fortum outlines
the need to target EC competition policy and powers towards restoring efficient
markets as a guarantee for successful energy transition and security of supply:
· Fortum shares the
European Commission’s calls for improvements in the energy-only market. Thus,
the introduction of any capacity mechanisms should be based on the demonstrated
necessity/benefits and not replace more proportionate and market-based
Fortum agrees with the
European Commission that volume-based mechanisms are better suited as possible
capacity instruments than price-based mechanisms.
Fortum believes that
strategic reserves are least distortive and should be preferred over full-scale
mechanisms. Strategic reserves have been successfully used in Sweden and
Finland to guarantee the functioning of the day-ahead market. Strategic
reserves can be used as a permanent solution if the day-ahead market cannot be
otherwise always cleared.
Fortum agrees with the
European Commission that regional adequacy assessments based on common
methodologies should be used in determining the capacity adequacy. If and where
capacity markets are justified by a regional assessment, cross-border
participation will only reach its optimal if it stems from a regional capacity
the cross-border participation of capacities should be well-calibrated and be
common to the regional market in concern. Supervision from the European
Commission is necessary to make sure that the criteria are sound, objective and
proportionate and do not unduly restrict the potentials of foreign
Read Fortum's comments in full from the attachment below.