Electricity security in the European Union - the conflict between national Capacity Mechanisms and the Single Market

The European Single Market for Electricity aims to promote trade and competition in electricity generation across the EU, with investment signals for new generation capacity and interconnection coming from zonal electricity prices reflecting scarcity value. However, a growing number of EU Member States have implemented – or are in the process of developing – national Capacity Mechanisms in order to ensure future security of supply within their own borders, which may distort the cross-border trade of energy across interconnectors and reduce total welfare. This local view of energy security is in response to internal technical and economic constraints and a perceived inability of cross-border electricity flows to be a reliable source of capacity at times of maximum stress, in favour of self-sufficient approaches. A number of routes are available to resolve this conflict through a mechanism to permit cross-border participation of generators in local Capacity Mechanisms, but this requires resolution of a number of complicating factors, not least a means for properly allocating transmission capacity without introducing further distortions to the energy market. Alternative solutions could be enacted at an EU-level, such as through the alignment of Capacity Mechanisms to a common model, or the introduction of an EU-wide single Capacity Mechanism, but the current regulatory focus appears to remain on resolution of such issues at a national level.