National capacity mechanisms in the European internal energy market: Opening the doors to neighbours

Abstract

After decades of strong opposition, several European countries are now in the process of implementing some kind of Capacity Remuneration Mechanism (CRM). Unfortunately, these national initiatives seem to aim at energy autarky rather than seeking a wider regional coordination. This situation can significantly affect the potential benefits of an integrated long-term expansion of the European power system.In this paper the regulatory basis for the effective participation of foreign agents in national CRMs is discussed. The authors support that two pillars are required: (1) stronger coordination among TSOs11The following abbreviations will be used throughout the article. CRM (Capacity Remuneration Mechanism); TSO (Transmission System Operator); EU (European Union); EUPHEMIA (EU Pan-European Hybrid Electricity Market Integration Algorithm); PCR (Price Coupling of the Regions); PTR (Physical Transmission Right); UIOSI (Use-It-Or-Sell-It, clause of the PTR); FTR (Financial Transmission Rights); MiFID (Markets in Financial Instruments Directive). and respect for the Security of Supply Directive and (2) introduce a particular type of firm cross-border nominations associated to the CRMs commitments. These proposed nominations are to be considered only in situations of system stress. As discussed here, this allows not requiring any type of ex-ante cross-border capacity reservation, thus avoiding many of the inefficiencies associated to traditional physical bilateral contracts.