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Capacity mechanism and Clean Energy Package: RTE has published an impact assessment to contribute to the European debate

Source: RTE - DIESE 25/09/2018

RTE has released an impact assessment to evaluate the performance of various potential electricity market designs. This report examines the benefits these 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 the long-term.

This assessment is based on a broad review of the literature, representative of many European-based studies carried out 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 model of the functioning of capacity mechanisms, leading to additional findings in terms of their impact.

Through this analysis, RTE aims to assist 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 debates 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 assessment, it appears:

  • that the choice of the French public authorities to introduce a capacity mechanism to guarantee security of supply on a national level is justified
  • 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
  • that energy market reform essentially based on raised price caps is not an effective alternative to introducing a capacity market
  • that coexistence between a capacity mechanism and raised price caps on the energy market could translate into greater financial risk for some market participants andultimately lead to a loss of social welfare.

RTE is at your disposal, via your usual contact, for any further discussion on economic assessments relating to electricity market designs.

The full report is available in the section "Capacity Mechanism of the RTE Customer Portal".