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Capacity mechanisms and Clean Energy Package: RTE is publishing an impact assessment to contribute to the European debate

Source: RTE - DIESE 22/02/2018

RTE is publishing an impact assessment of the performance of various possible electricity market designs. This report examines the benefits these designs can bring to the social welfare, especially with regard to their ability to meet the security of supply target set by the public authorities over time.

This analysis is based on a broad review of the literature, representative of many studies carried out in Europe in recent years on this issue. A highly diverse cross-section of authors, viewpoints and approaches were taken into account. RTE has drawn on this critical review to develop an economic modelling of the functioning of capacity mechanisms, leading to additional findings in terms of their impact.

Through  this analysis, RTE aims to support public decision making on the economic regulatory framework most able to contribute to the French and European security of supply. The publication of these works comes at a time of significant debate around the issue within Europe, in the context of the process for adopting the fourth energy package, known as the Clean Energy for all Europeans Package.

Following this economic analysis, it appears:

  • that the choice of the French public authorities to introduce a capacity mechanism to guarantee security of supply on a national level brings significant benefits to the social welfare
  • that implementing a well-designed and sized capacity mechanism is a no regret option for the community, regardless of whether there are energy market failures or not
  • that an energy market reform essentially based on raising price caps to a very high value is not an effective alternative to introducing a capacity market
  • that if a capacity mechanism is implemented, raising price caps on the energy market could translate into increased financial risk for investors and in fine a loss of social welfare.

RTE's Direction Economie du Système Electrique is at your disposal, via your usual contact, for any further discussion on economic analyses relating to electricity market designs.

The executive summary (English) and the full report (french) are available in the Capacity Mechanism section of the RTE Customer Portal.