Importing from? Capacity adequacy in a European context

Abstract

In this paper we ask the question: why has capacity adequacy become a worry in developed countries in general, and Europe in particular, in recent years, and how serious is this problem? While the liberalisation process and the fast move to variable renewable energy sources play a role in this process, they are not the only causes. We discuss the extent to which regulators and policy makers are able to influence the evolution of the market and also consider the role of and challenges created by regional markets and cross-boarder integration. We conclude that policy makers can go into one of two directions. The first option is to ignore cross-border trading in their planning. While this would create security of supply for individual countries, it would come at the cost of very significant investment subsidies. The alternative is to rely on cross-border trade, an option which requires not only close cooperation and coordination, but also significant trust between the jurisdictions and institutions involved, to ensure sufficient capacity. The choice between these options is a political decision, to be made at the national and supranational levels, not by regulators, and even less by market participants.