Because of the requirement for State aid approval, Member States proposing new schemes have in practice been taking these recommendations into account, even before the publication of the final report. For example, over the last year, the Commission worked with the French authorities to agree a number of adjustments to the proposed French decentralised obligation scheme which will become operational in 20176. The scheme will now facilitate the entry of new market players, by awarding certificates four years in advance of delivery and for a 7 year duration. The scheme will also be open to foreign capacity.
Germany is also planning to introduce two new strategic reserves, in addition to the existing network reserve which targets the north-south imbalance during winter months. A new capacity reserve will be introduced from 2018/2019 onwards to cover situations where there is a shortfall in supply from renewable generation (especially in the winter). 2 GWs of capacity will be procured by the transmission system operators by means of a competitive procedure. In addition, a so-called lignite reserve is planned. This mechanism covers eight lignite plants that will be taken out of active service from 2019 and then kept operational for four further years before finally decommissioning. This mechanism was controversial as the overall costs for final electricity consumers of EUR 1,600,000,000 are substantial, but the Commission accepted this mechanism in May 2016.
In Greece, the transitional electricity flexibility remuneration mechanism, a targeted capacity payments model which compensates gas-fired and hydro power plants for the provision of flexibility services to the Greek interconnected electricity system, is required to be replaced by April 2017. However, the newly proposed permanent capacity mechanism, using a central buyer model, has not yet been approved by the Commission.
The Polish Government is also currently planning to introduce a market-wide, central buyer capacity mechanism as a priority due to the need for a significant volume of new power generation in Poland. The detailed proposal for the design of the Polish capacity market, announced in July 2016 and outlined in draft legislation published in early December 2016, shares many of the characteristics of the British model. Following the publication of the EU Winter Package the Polish Government declared that its intention is to implement the Polish capacity mechanism before proposed new European rules become effective, which could limit access of coal fired power plants to capacity mechanisms.
Whilst the British capacity market is mentioned as a comparator in the Sector Inquiry and was the first scheme to receive State aid approval, surprisingly the European Commission did not examine the scheme as part of the Sector Inquiry. The final report coincided with the T-4 auction in which prices rose to £22.50 kW/Yr (2015/16 prices), as the UK Government procured 52.425GW, 6.072GW more capacity compared to the previous year’s auction7. However, despite the increase in capacity procured, prices did not rise as high as expected. As a result, the auction did not secure the volume of new build gas fired power plant which the UK Government had wanted and delivered a high proportion of small, distribution connected, generation, as well as new build contracts for storage and unproven demand-side response. The results raise the perennial questions of whether market mechanisms can procure large-scale investment in new capacity, and whether, in the smart networks of the future, complex networks of distributed smaller scale generation is a viable alternative.