REPORT FROM THE COMMISSION Final Report of the Sector Inquiry on Capacity Mechanisms
Date: 2016-11-30
Institutions: Directorate-General for Competition, European Commission
Subjects: State aid, climate change policy, electrical energy, electricity supply, energy supply, investment promotion, price of energy, security of supply, self-sufficiency in energy, single market

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 30.11.2016  COM(2016) 752 final   REPORT FROM THE COMMISSION Final Report of the Sector Inquiry on Capacity Mechanisms {SWD(2016) 385 final}  
 
 
REPORT FROM THE COMMISSION 

Final Report of the Sector Inquiry on Capacity Mechanisms 

1. Introduction 

Europe's Energy Union strategy aims to ensure secure, clean and affordable energy supplies to 
European  consumers.1  Despite  important  progress  towards  these  objectives,  security  of 
electricity supply is a growing concern in an increasing number of Member States. To prevent 
possible  electricity  shortages,  some  Member  States  have,  or  plan  to  put  in  place,  different 
types  of  capacity  mechanisms.  These  mechanisms  should  remunerate  electricity  generators 
and other capacity providers, such as demand response operators, for being available in case 
of need.  

Public  support  to  capacity  providers  risks  creating  competitive  distortions  in  the  electricity 
market  and  in  principle  constitutes  State  aid.  Capacity  mechanisms  often  provide  subsidies 
only for national capacity providers, ignoring the value of imports and distorting investment 
signals.  This  means  many  of  the  benefits  of  an  open  and  well-connected  Internal  Energy 
Market are lost and costs for consumers increased. These mechanisms also sometimes favour 
certain technologies or market players without objective justification, or prevent competitive 
new entrants from becoming active on the electricity market. This distorts competition, risks 
jeopardising decarbonisation objectives and pushes up the price for security of supply. On 29 
April 2015, the Commission therefore launched a State aid sector inquiry to gain insights into 
the need, design and market impacts of capacity mechanisms.  

This Final Report presents the main findings of the inquiry, with further detail in the annexed 
report.2  It  provides  insight  into  when  capacity  mechanisms  involve  State  aid  and  how  the 
Commission  views  capacity  mechanisms  in  relation  to  State  aid  rules.34  In  applying  these 
rules,  the  Commission  aims  to  ensure  that  Member  States  introduce  capacity  mechanisms 
only  when  needed,  and  in  such  a  way  that  the  internal  energy  market  is  not  carved  up  into 
national markets at the expense of consumers and potentially climate objectives. 

During  the  sector  inquiry,  the  Commission  services  focused  on  the  electricity  markets  of 
eleven  Member  States  that  have  already  introduced,  or  plan  to  introduce,  capacity 
mechanisms.5  The  Commission  services  gathered  a  large  amount  of  information  from 
Member  States,  energy  regulators,  associations  and  market  operators,  meetings  and  through 
two  sets  of  questionnaires  addressed  to  over  200  stakeholders.  On  13  April  2016,  the 

1 Communication from the Commission, 'A Framework Strategy for a Resilient Energy Union with a Forward-Looking 
Climate Change Policy', 25 February 2015, COM(2015)80. 
2 Commission Staff Working Document accompanying the Final Report of the Sector Inquiry on Capacity Mechanisms, 30 
November 2016, SWD(2016)385. 
3 The Guidelines on State aid for environmental protection and energy 2014-2020 ('EEAG') (2014/C 200/01) include specific 
rules for assessing capacity mechanisms from a competition law perspective.    
4 Note that the conclusions of the sector inquiry are general findings that do not replace the need for a case-by-case 
assessment of any individual State aid measure. 
5 Belgium, Croatia, Denmark, France, Germany, Ireland, Italy, Poland, Portugal, Spain and Sweden.  

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Commission  published  an interim report on the sector inquiry for public consultation.6  This 
Report takes account of the 114 replies received on the interim report.7 

This  Report,  together  with  its  annexes,  is  presented  together  with  a  package  of  legislative 
proposals,  as  part  of  the  work  to  create  an  EU  Energy  Union  with  forward  looking  climate 
change  policy.  The  package  includes  legislative  proposals  to  improve  the  design  and 
operation  of  EU  electricity  markets  ('Market  Design  Initiative'),  including  proposals  to 
improve  national  generation  adequacy  policies  which  build  on  the  findings  of  the  sector 
inquiry,  which  should  over  time  reduce  the  need  for  capacity  mechanisms  to  guarantee 
security of supply.8 

2. Concerns about security of supply 

2.1. Is there a problem of security of electricity supply in the EU today? 

Since the beginning of the economic and financial crisis in 2008, electricity demand in the EU 
has decreased. The total installed generation capacity has, over the same period, continued to 
increase.9  Capacity  margins10  have  therefore  widened11,  and  since  2010  price  spikes  in  the 
electricity  markets  have  become  less  frequent.12  The  sector  inquiry  has  confirmed  that 
capacity  shortages  where  consumers  were  actually  disconnected  due  to  insufficient  power 
generation  have  been  extremely  rare  in  the  past  five  years.13  In  other  words,  the  EU  as  a 
whole is currently in a situation of overcapacity. 

However,  the  situation  varies  between  Member  States.  Some  Member  States  appear  to  face 
genuine  security  of  supply  challenges,  of  varying  magnitudes  and  durations,  and  there  are 
specific local security of supply issues affecting certain areas within some Member States. A 
considerable  number  of  existing  power  plants  will,  moreover,  be  phased  out  in  the  coming 
years. Some power plants are approaching the end of their operational lifetimes, some cannot 
meet new environmental and emissions standards, while others will be phased out as a result 
of national energy policy choices (e.g. phasing out of nuclear energy in Germany).  

6 C(2016) 2017 and SWD(2016)119. 
7 An overview of the responses of the public consultation is annexed to the report (Staff Working Document) accompanying 
this Communication. 
8 The package includes revisions of Regulations (EC) No. 713/2009 and 714/2009 as well as of Directive 2009/72/EC. The 
package furthermore includes a proposal for  a new Regulation on risk-preparedness in the electricity sector repealing 
Directive 2005/89/EC. 
9 This divergence is mainly due to the implementation of investment decisions taken before the crisis started. Although total 
installed capacity increased to a different extent in each of the 11 Member States covered by the sector inquiry, it increased 
by more than 30% since 2000 in the EU as a whole. 
10 A capacity margin is typically calculated as the difference between installed capacity and peak (or average) demand. 
Installed capacity can be de-rated according to its expected availability to provide a better indication of the expected capacity 
margin. 
11 ENTSO-E has estimated that the margin between the amount of electricity needed at peak times and the electricity that can 
be produced with the available generation capacity is of 13% for the EU as a whole (“ENTSO-E: 2015 Scenario Outlook & 
Adequacy Forecast”, available at 
https://www.entsoe.eu/Documents/SDC%20documents/SOAF/150630_SOAF_2015_publication_wcover.pdf ). 
12 Figures published by ACER show a decrease in the frequency of price spikes in EU electricity markets since 2010 (ACER 
Annual Report on the Results of Monitoring the Internal Electricity Market in 2015, available at:  
http://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER%20Market%20Monitoring%20Rep
ort%202015%20-%20ELECTRICITY.pdf ). 
13 The only major exception was Poland, where a heat wave in August 2015 led to forced plant outages. 

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More  generally,  Europe's  electricity  sector  is  experiencing  an  unprecedented  transition. 
Market  liberalisation  and  efforts  to  reduce  greenhouse  gas  emissions  have  profoundly 
changed  the  way  in  which  electricity  is  generated,  traded  and  consumed.  Electricity 
generation  from  renewable  energy  sources  is  growing  rapidly.  This  has  resulted  in  lower 
wholesale  electricity  prices,  but  has  also  reduced  the  use  of  conventional  generation 
technologies,  such  as  coal  and  gas,  because  renewable  energy  generally  has  lower  running 
costs.  Declining  demand,  lower  prices  and  lower  utilisation  rates  have  all  reduced  the 
profitability  of  conventional  electricity  generation.  At  the  same  time,  flexible  conventional 
technologies continue to play a very important role: the  growing  share of renewable energy 
sources like wind and solar energy,14 the output of which varies with weather conditions and 
from  daytime  to  nighttime,  requires  flexible  energy  systems,  including  reliable  back-up 
capacity,  that  can  take  the  form  of  conventional  generation,  demand-response  or  storage,  to 
ensure security of supply at all times.  

Member  States  are  concerned  that  existing  electricity  generation  capacity,  plus  expected 
investment in new capacity, may be insufficient to maintain security of supply in the future. If 
current  low  levels  of  profitability  of  traditional  generation  capacity  only  reflect  current 
overcapacity, there may be little reason to worry about future capacity adequacy. If, however, 
low  profitability  is  also  the  result  of  market  or  regulatory  failures,  incentives  to  invest  may 
prove insufficient to maintain adequate levels of capacity in the medium and long-term.  

2.2. Why investment may be insufficient to ensure secure supplies in the future 

Economic operators decide whether to maintain current capacity, or to invest in new capacity, 
on the basis of expected revenues.  

To verify whether the markets analysed are able to trigger sufficient investment in capacity to 
meet future demand, the sector inquiry looked at whether there are regulatory and/or market 
failures which hinder investment. The inquiry did identify several market failures that might 
prevent electricity markets from generating enough investment to ensure security of supply. In 
particular, the sector inquiry concludes that, to work effectively, electricity markets depend on 
prices  rising  sufficiently  during  periods  when  supply  is  tight  in  relation  to  demand.  Profits 
generated by high prices in these 'scarcity' periods are a critical incentive to invest, especially 
for  flexible  technologies  that  operate  rarely  and  therefore  need  to  recoup  their  investment 
costs during relatively few running hours.  

In  practice,  several  factors  limit  the  ability  of  electricity  markets  to  deliver  high  prices  at 
times  of  scarcity.  First,  few  individual  electricity  customers  are  able  to  respond  to  price 
variations  in  real  time  and  to  reduce  their  consumption  during  peak  hours  when  prices  are 
high. In the absence of price-responsive demand, rules put in place by national authorities to 
balance  supply  and  demand  often  include  low  regulated  price  caps  that  do  not  reflect 

14 Wind and solar represented 11% of the EU28 electricity production in 2014 (Eurostat), but in some Member States, they 
are responsible, during certain hours, for almost the entire generation and in other hours do not produce at all. 

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customers' willingness to pay for secure supplies and that therefore result in prices which do 
not reflect the actual value of additional resource adequacy.15  

Second, even in the absence of explicit price caps, the rules for managing balancing markets, 
where electricity generation and demand must be matched in real time by network operators 
and  the  ultimate  electricity  price  for  each  hour  is  set,  in  practice  cap  the  price  in  forward 
markets.16  

Third,  a  proper  delineation  of  bidding  zones17  is  crucial  for  ensuring  the  right  locational 
signals for investment in generation and transmission. Where prices are set in a large bidding 
zone  without  accounting  for  the  limitations  of  the  transmission  system,  out-of-market 
'redispatching' measures are required to turn off some generation and turn it on elsewhere (at 
extra  cost)  within  the  large  zone  to  balance  the  grid.  This  out-of-market  redispatching 
undermines  investment  signals  and distorts  electricity  prices  –  creating  hidden  subsidies  for 
some  consumers  and  surcharges  for  others.18  This  price  distortion  undermines  cross-border 
trade  and  reduces  incentives  to  invest  in  more  interconnection  capacity  between  Member 
States. The sector inquiry has shown that the current configuration of bidding zones in the EU 
is  creating  significant  problems  for  the  operation  and  development  of  an  efficient  Internal 
Energy Market. 

Finally,  even  where  scarcity  pricing  is  allowed,  and  bidding  zones  are  appropriately 
delineated,  market  participants  may  still  be  hesitant  to  invest  in  new  capacity  due  to 
considerable  uncertainty  about  future  market  developments,  such  as  the  impact  on  their 
investment of the increasing market share of renewable energy and potentially extreme price 
volatility. 

3.  Reforming the electricity market  

The sector inquiry has identified a number of market reforms that may reduce concerns about 
security  of  supply  or  even  remove  the  need  for  capacity  mechanisms  altogether.  Member 
States  should  therefore  implement  these  reforms  before  or  while  introducing  a  capacity 
mechanism. 

Prices that reflect the true value of electricity can provide signals for new investment in the 
reliable  and  flexible  capacity  needed  to  deliver  secure  electricity  supplies.  Removing 
excessively  low  price  caps,  and  instead  allowing  prices  to  rise  to  reflect  consumers' 
willingness  to  pay,  is  therefore  a  key  market  reform.  Balancing  market  rules  should  be 

15 Efficient price caps should in principle reflect consumers' average willingness to pay for not being disconnected when 
scarcity arises, the so-called value of lost load (VOLL). 
16 For instance, penalties for imbalance at the moment of delivery can act as an implicit price cap in day-ahead and other 
forward markets if they are too low, because operators may prefer paying the penalty than paying high prices. 
17 Bidding zones are defined as uniform price areas i.e. where all demand and supply bids are settled at the same time and at 
the same price.  
18 For example, if there is too much demand and not enough generation in one area within a large bidding zone, and 
insufficient transmission connecting that area to the rest of the zone, then prices in that area will be too low compared to the 
actual costs of generating electricity for consumption in that area. For other isolated areas in the bidding zone where 
generation is plentiful compared to demand, prices will be too high. So consumers in one part of the bidding zone subsidise 
consumers in another, and market prices remain distorted so markets fail to send signals for investment in the right locations.  

5 

 
 
                                                            
improved  so  that  costs  borne  by  network  operators  to  keep  the  system  in  balance  are  fully 
reflected  in  the  imbalance  prices  paid  by  market  participants  that  are  'out  of  balance'.19  All 
market participants should have the incentives and the opportunity to support system balance 
by  making  sure  their  actual  metered  electricity  generation  or  consumption  matches  the 
electricity they have contracted to buy or sell in forward markets.20  

Member  States  might  be  concerned  that  removing  price  caps,  and  higher  peak  wholesale 
prices, will affect retail prices. The sector inquiry has found that such risks can be managed 
by the market itself, for instance by introducing hedging products which allow suppliers and 
end consumers to protect themselves against price peaks, including over the longer term via 
long term hedging contracts.21 Such longer term hedging can also help support a business case 
for investment by generators,  by converting uncertain potential scarcity prices into a certain 
regular income stream. A further uptake of such hedging contracts should, therefore, be seen 
as a useful development that could help reduce the need for capacity mechanisms in the first 
place. 

Moreover, regulatory authorities may be reluctant to allow wholesale prices to rise either for 
fear of abuse of market power or due to concerns that they will result in higher retail prices 
for households and industry. The risk of abuse of market power linked to more volatile prices 
can be mitigated – by broadening market participation and increasing competition, as well as 
by improving transparency, data availability and market monitoring.22  

A second important market reform concerns the participation of demand response providers in 
the  market.  Increasing  the  responsiveness  of  demand  to  prices  in  real  time  is  of  crucial 
importance  because  it  can  flatten  demand  peaks  and  thus  reduce  the  need  for  additional 
generation  capacity.  However,  demand  response  providers  still  face  important  barriers  to 
participation  in  the  market  and  the  legal  framework  is  fragmented  across  the  EU.  In  some 
markets, demand response providers are not allowed to participate, while in other markets the 
network tariff regime or the absence of technical rules make it unattractive or even impossible 
for consumers to become active.  

Finally, the sector inquiry demonstrates that delineation of bidding zones should be examined 
and revisited so that appropriate local prices can form to stimulate investment in capacity in 
those places where it is lacking as well as in the transmission infrastructure needed to move 
electricity from producers to consumers. 

19 Generators that generate less than promised, or retailers that use more energy than promised, contribute to total system 
imbalance and therefore have to pay imbalance prices. The Market Design Initiative proposals include certain exemptions 
from this general principle (see Article 4 of the proposed Electricity Regulation). 
20 Where the removal of price caps does not lead to the desired appearance of scarcity prices, some electricity market 
operators have introduced administrative scarcity pricing. This is a regulatory intervention where a predetermined price adder 
is applied automatically to the market price as the probability of unmet demand increases. In this way, as capacity margins 
tighten, electricity prices will be automatically set to a level that reflects the risk of scarcity providing strong incentives for 
market participants to generate (or reduce demand) when the system most needs electricity. Examples of administrative 
scarcity pricing are found in Texas and the UK 'reserve scarcity pricing function'. Ireland is introducing a similar system. 
21 Examples of hedging products can be found in Australia and have been introduced in Germany by EEX. 
22 Antitrust enforcement can also prevent anticompetitive behaviour, but should not be interpreted to be a barrier for the 
formation of high electricity prices per se where such prices represent the value of electricity at times of scarcity. 

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The Market Design Initiative contains proposals to address all these issues: the development 
of short term markets that respond to the need of more variable and less predictable increasing 
shares  of  wind  and  solar  power,  harmonised  rules  for  the  participation  of  demand  response 
providers, standardisation of balancing products and rules for their provision across borders – 
further increasing competition in the balancing market and  improvements  to  the process  for 
defining bidding zones.   

Member  States  proposing  capacity  mechanisms  should  make  appropriate  efforts  to  address 
their  resource  adequacy  concerns  through  market  reforms.  In  other  words,  no  capacity 
mechanism should be a substitute for market reforms. 

4. 

When to implement a capacity mechanism? 

The market reforms described above can address many of the regulatory and market failures 
causing capacity shortages. Market reforms may however take time to be fully implemented, 
or may not be sufficient to fully address the underlying problem of adequate capacity. Some 
Member  States  therefore  decide  to  take  complementary  measures  in  the  form  of  capacity 
mechanisms.  

While the designs  of capacity  mechanisms vary, they all  offer capacity providers additional 
revenue  through  payments  for  making  electricity  capacity  available.  This  remuneration  is 
likely to involve State aid, which must be notified to the Commission for approval under EU 
State aid rules. The Commission is likely to consider a measure to be a capacity mechanism 
subject to State aid rules if i) the measure was initiatied by and/or involves the government23, 
ii) its primary objective is to guarantee the security of electricity supply24, and iii) it provides 
capacity  providers  with  remuneration  in  addition  to  the  revenues,  if  any,  they  receive  from 
selling electricity. 

After  notification  of  a  measure,  the  Commission,  on  the  basis  of  the  Energy  and 
Environmental Aid Guidelines, first assesses whether it is necessary to address a well-defined 
problem  of  security  of  supply  that  the  market  cannot  solve  by  itself.  Member  States  can 
demonstrate this by providing factual evidence that the market is unlikely to bring about the 
level  of  security  of  supply  they  deem  appropriate  –  defined  in  relation  to  an  economic 
reliability  standard  based  on  consumers'  willingness  to  pay.  This  includes  identifying  the 
market  failures  that  cause  the  problem,  quantifying  their  likely  impact  on  investment  and 
system  reliability,  and  estimating  the  size  of  the  gap  between  the  expected  and  the  desired 
level of security of supply.  

The adequacy assessments the Commission has reviewed so far generally provide a quantified 
analysis, but the sector inquiry shows that a lot of work remains to be done to ensure that the 
introduction of capacity mechanisms is based on an objective and thorough assessment of the 

23 A pure ancillary service developed and operated autonomously by a TSO does not qualify as a capacity mechanism that is 
relevant from a State aid perspective. 
24 Where a government develops a renewable support scheme and grants subsidies to a wind farm operator, it is likely that the 
primary objective of the measure is the decarbonisation of the power sector. In this case, while the measure adds to available 
capacity in the market, it is not considered as a capacity mechanism and therefore will be assessed against the rules for 
support to renewables. 

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adequacy of the electricity system. In the case of insufficiently reliable adequacy assessments  
authorities may need to remedy adequacy problems in the short term which bears the risk of 
interventions that expensive, distortive and increase market uncertainty.  

First,  the  approaches  and  practices  to  calculate  resource  adequacy  vary  widely  between 
Member States. Since Member States use different methodologies, metrics and assumptions, 
and  since  these  are  not  clearly  communicated,  it  is  difficult  to  ensure  that  the  results  are 
reliable  and  comparable.  Respondents  to  the  sector  inquiry  have  made  a  strong  case  for 
making  adequacy  assessments  more  comparable,  verifiable  and  objective.  To  address  these 
concerns,  the  Commission's  Market  Design  Initiative  proposes  to  introduce  a  coordinated 
European resource adequacy assessment based on a harmonised method. 

Second,  there  is  substantial  room  for  improvement  as  regards  Member  States’  approaches 
towards  reliability  standards,  i.e.  the  declared  level  of  security  of  supply  desired  by  the 
government.  An  economically  efficient  reliability  standard  is  based  on  the  value  that 
electricity consumers place on security of supply. In other words, Member States should carry 
out a cost-benefit analysis to determine the extent to which it is useful to give incentives to 
market  players  to  achieve  a  particular  reliability  standard.  Many  Member  States  do  not, 
however, carry out such a cost-benefit analysis and do not measure the value that consumers 
attach  to  having  uninterrupted  electricity  supplies.  Several  Member  States  that  have 
introduced  capacity  mechanisms  have  not  even  defined  a  reliability  standard.  Where 
reliability  standards  do  exist,  they  are  often  not  taken  into  account  when  designing  the 
capacity mechanism or setting its size.  

At  EU  level,  the  European  Network  for  Transmission  System  Operators  ('ENTSO-E')  is 
developing  a  probability-based  methodology  to  assess  the  capacity  adequacy  situation 
throughout  Europe.  The  Commission's  Market  Design 
further 
improvements to the assessment and development of EU-wide methodologies for calculating 
economically  coherent  reliability  standards  which  should  form  the  basis  of  any  decision  to 
implement  a  capacity  mechanism.25  It  also  envisages  that  Member  States  applying  capacity 
mechanisms introduce a reliability standard that is based on the value that consumers place on 
security of supply.  

Initiative  proposes 

A  rigorous  adequacy  assessment,  taking  into  account  the  regional  adequacy  situation  and 
based  on  a  well-defined  economic  reliability  standard,  is  crucial  for  identifying  risks  to 
security of supply and determining the necessary size of any capacity mechanism. 

 5. 

Fitting the solution to the problem  

Where  appropriate  market  reforms  have  been  implemented  or  are  already  planned,  and  a 
proper adequacy assessment has identified a residual regulatory or market failure, a capacity 

25 It for example includes the obligation to take into account an economic assessment of the future profitability of the 
generation fleet (which could include assessing the impact of expected price development of the different fuels and the 
carbon price) the contribution of planned market reforms and the potential impact of increasing demand response and 
network investments. 

8 

 
 
 
                                                            
mechanism may be appropriate to ensure secure electricity supplies for consumers. There are 
different  types  of  capacity  mechanisms,  and  some  are  more  suitable  than  others  to  address 
different types of adequacy concerns. 

 5.1  Which types of capacity mechanism exist in Europe? 

The sector inquiry identified 35 capacity mechanisms in the eleven Member States it covered. 
These  can  be  divided  into  'targeted'  and  'market-wide'  mechanisms,  both  of  which  aim  to 
ensure  sufficient  capacity  to  meet  a  reliability  standard.  Targeted  mechanisms  give  support 
only  to the extra capacity  required on top  of that provided by the  market without subsidies, 
whereas market-wide mechanisms give support to all market participants required to meet the 
reliability  standard.  Such  schemes  can  further  be  divided  into  'volume-based'  and  'price-
based'. In the volume-based schemes, the total amount of capacity required is determined in 
advance and a market-based process is then used to establish the price to be paid. In the price-
based schemes, a price is set administratively at a level calculated to achieve investment in the 
amount of capacity required.  

The sector inquiry has identified three types of targeted mechanisms: strategic reserves, where 
a  certain  amount  of  capacity  is  held  outside  the  market  to  be  called  upon  in  emergency 
situations;  tenders  for  new  capacity,  where  support  is  granted  to  new  investment  projects 
often  located  in  a  specific  area;  and  price-based  capacity  payments,  where  administrative 
payments are made to a subset of capacity in the market.  

The sector inquiry has also identified three types of market-wide mechanisms: central buyer 
models,  where  a  central  buyer  purchases 
required  on  behalf  of 
suppliers/consumers; decentral obligation schemes, where an obligation is placed on suppliers 
to  make  their  own  arrangements  to  contract  the  capacity  they  require;  and  price-based 
capacity payments, where an administrative payment is available to all market participants.   

the  capacity 

Finally,  the  sector  inquiry  has  identified  demand-response  schemes,  also  known  as 
interruptibility schemes, in six of the eleven Member States. These are targeted schemes that 
only remunerate demand response operators.  

5.2  Which capacity mechanism for which problem? 

Depending  on  the  type  of  capacity  adequacy  problem  identified,  different  types  of  capacity 
mechanisms  are  likely  to  be  appropriate.  The  main  adequacy  problems  encountered  in  the 
sector inquiry can be categorised in four groups:  

1.  concerns about the long-term ability of the market to trigger sufficient investment 
2.  concerns  of  a  temporary  nature  where  the  current  market  design  fails  to  provide 
adequate  investment  signals,  but  where  the  market  is  expected  to  be  effective  in  the 
longer term  

3.  concerns  of  a  local  nature  (i.e.  in  a  specific  location  within  a  Member  State)  that 
cannot  be  resolved  quickly  enough  by  investing  in  transmission  or  by  better 
delineation of electricity bidding zones and  

4.  concerns that, without additional support, energy consumers will not play a sufficient 

role in managing electricity demand and security of supply.  

9 

 
 
Long-term adequacy concern 

Where long-term adequacy concerns are identified, the most appropriate capacity mechanism 
to  address the  problem, while  limiting  distortions to  competition and trade,  is likely to  be  a 
volume-based, market-wide scheme. Such a mechanism can exchange the potential revenues 
from  uncertain  periods  of  high  prices  at  times  of  scarcity  for  a  regular,  guaranteed  income 
stream. It can therefore increase investment certainty.  

To  ensure  coherence  between  the  market  reforms  necessary  to  ensure  imports  at  the  right 
times  and  the  introduction  of  a  capacity  mechanism,  a  scheme  based  on  'reliability  options' 
may  be  the  best  choice.  In  such  a  scheme,  participants  receive  a  certain,  regular  capacity 
revenue but forego the opportunity to make profits from high electricity scarcity prices. 

Temporary adequacy concern 

Where adequacy assessments show and policy makers are convinced that in the long run the 
market can be reformed to ensure sufficient investment incentives and provided that there is 
sufficient capacity available to ensure security of supply until the markets deliver investments, 
long-term  interventions  are  not  necessary.26  However,  there  might  be  a  need  to  ensure  that 
existing capacity is not closing prematurely.  

In such circumstances a strategic reserve is likely to be the most appropriate response because 
it can help to control the amount of existing capacity leaving the market. Moreover, market 
distortions can be kept at a minimum if the reserve is kept as small as possible, is designed not 
to promote new generation capacity27, and is itself held outside the market to preserve market 
price  signals  and  incentives  for  capacity  to  remain  in  the  market.  In  order  to  ensure  their 
temporary nature, strategic reserves should not require long term commitments (for instance 
one-year  renewable  contracts)  or  lead  times.  They  should  also  build  in,  from  the  outset,  a 
clear  end  date  linked  to  planned  market  reforms  which  helps  to  preserve  future  investment 
signals.  

Local adequacy concern 

Adequacy concerns of a local nature are in most cases best addressed by better connecting the 
local area  with  other  areas  with  sufficient  capacity.  Where  better  connection  is  not  possible 
(e.g. on remote islands) or too costly, the local shortage should be reflected in local electricity 
prices, as  this  gives  an  incentive to  both  investment in  new capacity and energy savings by 
consumers. This requires a separate bidding zone for the local area.  

26 Though a strategic reserve may also be used as a tool to fill a gap if necessary while a volume-based market 
wide capacity mechanism is introduced, and can be valuable to avoid a transitional period in the market-wide 
scheme where auction lead times are too short to ensure competition from new entrants.  

27 New generation capacity generally needs long term commitments in order to be able to compete with existing 
capacities. These long term commitments are unlikely to be compatible with the necessary temporary nature of a 
strategic reserve.  

10 

 
 
                                                            
Where  introducing  a  separate  bidding  zone  is  not  possible  either,  for  example  because  the 
deficit area is so small that there would be no competition and all capacity in the zone would 
need  to  be  fully  regulated,  the  introduction  of  a  capacity  mechanism  may  be  appropriate. 
Where longer term adequacy concerns have been identified and a market-wide mechanism is 
being introduced, a market-wide mechanism can sometimes be tailored also to solve a local 
adequacy  problem.  For  example,  Italy  is  planning,  and  Ireland  is  considering,  to  create 
capacity  price  zones  within  a  market-wide  capacity  mechanism  to  provide  signals  for  local 
investment. 

A more targeted measure may also be suitable to address a local adequacy concern. Certain 
forms  of  strategic  reserve  can  be  limited  to  a  specific  region  only,  as  can  a  tender  for  new 
capacity. The size of these targeted mechanisms can be tailored to the identified capacity gap. 
The  particular  risk  with  tenders  is,  however,  that  the  new  capacity  pushes  existing  capacity 
out  of  the  market,  and  creates  a  situation  where  market  players  in  future  rely  on  tenders  to 
invest in new capacity rather than reacting to market signals.  

In  conclusion,  other  than  for  very  isolated  systems  where  transmission  is  prohibitively 
expensive,  new  transmission  infrastructure  or  structural  reforms  of  the  electricity  markets 
reflecting locational constraints are likely to be the most suitable long-term solutions to local 
capacity  concerns.  Local  capacity  mechanisms  may  however  be  necessary  tools  while  the 
required reforms are made.  

Concerns about the role of energy consumers 

The  fourth  concern  is  that  demand  from  energy  consumers  will  remain  inflexible,  although 
flexible demand is essential to cost-effectively balance an electricity market with increasingly 
volatile  wholesale  prices  due  to  variable  renewable  energy  production  and  the  potential  for 
high  scarcity  prices.  This  concern  may  lead  a  Member  State  to  introduce  an  interruptibility 
scheme  or  to  introduce  specific  rules  to  stimulate  demand  response  within  a  volume-based 
market-wide scheme.  

The Commission’s initial assessment of the eight interruptibility schemes in operation in the 
11 Member States suggests that these may be justified given their contribution to both short-
term  and  long-term  security  of  supply28.  Demand  response  can  provide  useful  tools  for 
balancing the system in the short run, and in the long run a fully responsive demand side has 
the potential to eliminate the need for capacity mechanisms since it would enable consumers 
to  pay  for  different  levels  of  reliability.  However,  the  appropriateness  of  interruptibility 
schemes – and therefore their compliance with EU State aid rules – depends crucially on how 
they are designed and how they actually function.  

State aid rules normally require capacity mechanisms to be open to all technologies.29 In the 
case of demand-response mechanisms however, the absence of competition  between different 

28 Note that such assessment within the sector inquiry cannot replace the need for individual assessment of any State aid 
measures, and this statement should not be interpreted to mean that schemes that have not yet been assessed and subject to a 
Decision of the Commission will be found compatible. 
29 Within the limits of climate change objectives as recognised in by the Energy and Environmental Aid Guidelines in 
paragraphs (220) and (233)(e). 

11 

 
 
                                                            
resources may be justified. Where a demand response scheme allows for broad participation 
from  large  and  small  industries  and  from  demand  response  aggregators,  does  not  procure 
excessive  capacity, is  based  on a competitive procurement, and is  designed not to  influence 
the  formation  of  appropriate  electricity  scarcity  prices,  it  can  be  an  appropriate  form  of 
intervention.  On  the  other  hand,  demand  response  schemes  in  which  too  much  capacity  is 
procured from only a subset of large industrial beneficiaries are unlikely to be approved under 
State  aid  rules.  They  risk  subsidising  energy  intensive  industries  without  providing 
corresponding value in terms of increased security of supply to other electricity consumers. 

Best  practice  identified  in  the  sector  inquiry  also  shows  that  where  specific  support  is 
available  for  demand  response,  the  support  should  not  be  available  indefinitely.  The  aim 
should  be  to  support  the  development  of  demand  response  so  that  in  the  longer  term  it  can 
compete in the market (or in a market wide capacity mechanism). 

Capacity payments generally unsuitable 

Finally, with respect to 'capacity payments', the sector inquiry shows that these mechanisms 
are  unlikely  to  set  the  right  price  for  capacity  since  they  do  not  allow  the  market  to 
competitively  set  the  right  capacity  price,  but  rather  depend  on  an  “administrative”  price. 
They are therefore unlikely to correctly reflect the actual scarcity situation. They imply a high 
risk  of  under-  or  over-procurement  of  capacity  –  especially  as  such  schemes  tend  to  react 
slowly  to  changing  market  circumstances.  The  general  presumption  is  therefore  that  price-
based  mechanisms  are  unlikely  to  be  an  appropriate  measure  regardless  of  the  specific 
concern identified.  

Choosing the type of capacity mechanism that suits the identified problem: 

  For  long-term  risks,  market  wide  capacity  mechanisms  are  the  most  appropriate 

instruments – alongside market reforms to limit the role of the capacity mechanism.  
  For temporary risks, a strategic reserve is likely to be a more appropriate solution while 
the market is reformed to deliver security of supply in the longer term. The reserve must 
be held outside the market. 

  For a local adequacy issue, the problem should be solved by better grid connections or 
more appropriate bidding zones but various mechanisms may be appropriate transitional 
tools.   

  To  develop  a  flexible  demand  side,  an  interruptibility  scheme  may  be  an  appropriate 

solution. 

  Administrative  capacity  payments  are  not  likely  to  be  appropriate  because  the  lack  of 
competitive  process  means  a  high  risk  of  failing  to  achieve  the  objective,  or  of  over-
compensating.  

12 

 
 
 
 
6. 

Getting the design right 

Regardless  of  the  type  of  scheme  chosen,  all  Member  States  need  to  make  detailed  design 
choices about three basic features of capacity mechanisms: 

  eligibility: who can participate in the capacity mechanism? 
  allocation: how to set the price of capacity and select capacity providers? 
  product design: what are the obligations and penalties on capacity providers? 

Decisions  on  all  of  these  areas  determine  the  effectiveness  of  the  capacity  mechanism  in 
achieving  security  of  supply  at  the  lowest  possible  cost  and  the  extent  to  which  it  affects 
competition  and  trade  among  capacity  providers  competiting  for  subsidy  in  the  mechanism, 
through distortions to the electricity market and between Member States.  

6.1 

Eligibility – who can participate? 

In terms of eligibility, many existing capacity mechanisms are open only to a limited number 
of capacity providers. In some cases, certain capacity providers are explicitly excluded from 
participating. In other cases, requirements such as size, environmental requirements, or short 
lead times30 implicitly reduce the number of potential capacity providers.  

New and existing capacities are often procured separately rather than encouraged to compete 
within  the  same  capacity  mechanism  –  missing  an  opportunity  to  increase  competitive 
pressure  on  all  participants.  Capacity  from  other  countries  is  usually  excluded,  and  some 
Member States do not even take into account the contribution of imports when assessing how 
much domestic capacity they need, which leads to a collection of national overcapacities.  

The inquiry has also shown that overly selective capacity mechanisms risk over-compensating 
their participants because the competitive pressure is weaker when the allocation process has 
only  limited  participation.  The  payments  to  capacity  providers  resulting  from  this  limited 
competition are typically at a higher level than the funding they actually require to provide the 
availability service. 

Where  eligibility  is  restricted,  Member  States  have  also  tended  to  introduce  additional 
mechanisms  over  time  so  that,  in  the  end,  almost  all  capacity  has  an  opportunity  to  claim 
support. This helps explain why 35 mechanisms were found in only eleven Member States.31 
Such  a  piece-meal  approach  to  capacity  adequacy  risks  creating inefficiencies,  and  multiple 
capacity mechanisms will usually not be appropriate except where an additional mechanism is 
used to support demand response. For example, where a market-wide capacity mechanism is 
in place, the introduction of an additional capacity mechanism would need to be justified by 
demonstrating  an  additional  market  failure  that  cannot  be  solved  with  the  market-wide 
mechanism.  

This  situation  is  however  changing.  There  is  a  growing  and  welcome  tendency  towards 
mechanisms open to a wider group of potential capacity providers, and the new mechanisms 
being  developed  in  France,  Ireland,  Italy  and  Poland  are  all  designed  to  enable  different 

30 'Lead time' is the time between the allocation of a capacity bid and the moment of delivery.  
31 Though some are past or planned mechanisms and not all of these are in simultaneous operation. 

13 

 
 
                                                            
capacity technologies and new and existing resources to compete. France and Ireland are also 
developing plans to allow direct cross-border participation in their capacity mechanisms. This 
is  essential  to  remove  investment  signal  distortions  that  favour  domestic  investment  and 
benefit  incumbents.  It  also  creates  incentives  for  continued  investment  in  interconnection 
where this is the most cost-effective way to increase security of supply. In the interim sector 
inquiry  report,  the  Commission  put  forward  ideas  on  how  to  implement  cross-border 
participation  in  practice.  In  the  Market  Design  initiative,  the  Commission  proposes  binding 
common rules on cross-border participation to reduce complexity, inefficiency and ultimately 
costs to consumers, as well as respecting Member States' decarbonisation objectives. 

While generally there are strong benefits of open eligibility, the sector inquiry identified two 
exceptions to that rule. First, the long term importance of demand response as a remedy for 
market failures can justify interruptibility schemes limited only to demand response. Second, 
since strategic reserves are only appropriate to address temporary problems and because they 
need  to  be  designed  so  that  their  interference  with  the  market  is  minimal,  they  should  not 
promote new capacity requiring long term commitments. 

6.2 

Allocation – setting the price of capacity and selecting capacity providers 

The sector inquiry has found both administrative and competitive allocation processes. In an 
administrative  allocation  process  all  eligible  capacity  providers  are  selected  without 
competition and the level of capacity remuneration is set in advance by public authorities or 
negotiated bilaterally between the authorities and capacity providers. A competitive allocation 
process  allows  potential  capacity  providers  to  compete  to  provide  the  required  level  of 
capacity, setting the level of capacity remuneration through market forces.  

Administrative  allocation  processes  are  unlikely  to  reveal  the  true  capacity  value  and  are 
therefore unlikely to be cost-effective since they risk providing too much or too little capacity. 
The  lack  of  a  competitive  process  also  misses  an  opportunity  to  deliver  better  value  for 
consumers. In Spain, for example, the cost of an interruptibility service almost halved after a 
competitive auction was introduced. Competitive allocation processes are in principle a better 
tool,  combined  with  eligibility  rules  that  ensure  competition  between  all  possible  providers 
capable of delivering the required capacity.  

Until  now,  administrative  and  competitive  processes  have  been  equally  common  in  the 
11 Member  States  covered  by  the  inquiry,  but  new  or  revised  mechanisms  planned  by 
Member  States  increasingly  involve  competitive  bidding  processes.  Ireland  and  Italy,  for 
example, plan to replace administrative allocation processes by competitive auctions.  

6.3 

Capacity product – what do capacity providers have to do? 

All  capacity  mechanisms  include  certain  obligations  that  capacity  providers  must  fulfil, 
ranging from an obligation to build and operate a power station, through obligations linked to 
fulfilling instructions from the network operator (e.g. generate electricity), to obligations that 
are more complex (e.g. reliability options requiring financial paybacks when a strike price is 
exceeded by a reference price).  

14 

 
 
There are also many different rules for what happens if capacity providers fail to meet their 
obligations (penalties). Some mechanisms simply exclude capacity providers from receiving 
future payments, but most require them to return the payments earned or to pay an additional 
penalty.  

The  sector  inquiry  has  found  that  where  obligations  are  limited  and  penalties  for  non-
compliance  are  low,  there  is  insufficient  incentive  for  plants  to  be  reliable.  Both  capacity 
mechanism penalties and electricity scarcity prices provide signals for generation or demand 
reduction in scarcity situations. However, only electricity prices provide a signal for imports 
within  the  Internal  Energy  Market.  To  avoid  distorting  cross-border  trade  Member  States 
should  therefore  take  care  not  to  replace  electricity  price  signals  with  capacity  mechanism 
penalties.  

A further finding is that mechanisms which include demand response usually impose different 
obligations on demand response providers than on electricity generators. Some differentiation 
in  obligations  and  penalties  between  generation  and  demand  response  may  be  justifiable,  at 
least  in  the  short  term,  to  enable  the  development  of  demand  response,  which  in  the  longer 
term will be a better response to underlying market failures than capacity mechanisms. 

6.4  Minimising competition and trade distortions through appropriate design 

Capacity mechanisms have the potential to distort competition in the electricity market, both 
within  the  Member  State  setting-up  the  mechanism  and  cross-border.  However,  the  sector 
inquiry  found  that  these  distortions  can  largely  be  addressed  by  ensuring  a  high  degree  of 
competition within the capacity mechanism itself. 

Firstly,  in  concentrated electricity  markets,  capacity  mechanisms  may  distort  competition  in 
the electricity market of the member State setting-up the mechanism. This is the case where 
the revenues from the capacity mechanism essentially accrue to existing capacity in the hands 
of incumbents. This increases barriers to entry for competitors and cements the concentration 
of the electricity market. An open and competitive process for selecting the capacity providers 
where new entrants of all technologies can compete against existing capacity providers, will 
go  a  long  way  to  reducing  these  competition  distortions.  Additional  safeguards  (e.g. 
transparent and organised trading of certificates) may be needed to create a level playing field 
for new entrants, in particular in decentralised schemes. Conversely, in some circumstances it 
may be possible to use the capacity mechanisms to help new entry, e.g. by offering long-term 
contracts to new capacity or having a premium for competition in tenders. 

Secondly, capacity mechanisms create distortions across borders both by altering signals for 
electricity  trading,  and  by  affecting  incentives  for  investment  in  domestic  and  foreign 
capacity, and in interconnection. 

Given  the  importance  of  electricity  prices  as  a  signal  for  efficient  electricity  imports  and 
exports  within  the  Internal  Energy  Market,  capacity  mechanisms  should  be  designed  to 
coexist with high electricity scarcity prices. A Member State that chooses to rely on electricity 
prices can attract imports at the right times and at the same time provide strong incentives for 

15 

 
 
reliability.  Reforms  to  allow  electricity  scarcity  prices  and  a  capacity  product  design  that 
coexists with electricity scarcity prices are therefore crucial to avoid trade distortions.32  

As  well  as  the  potential  impact  on  trade  at  times  of  scarcity,  market-wide  capacity 
mechanisms  will  generally  have  a  dampening  impact  on  electricity  prices  because  capacity 
providers  now  earn  part  of  their  income  from  the  capacity  mechanism  instead  of  the 
electricity  market.  If  capacity  revenue  is  only  available  to  domestic  capacity  providers  this 
dampening effect creates a distortion in favour of domestic capacity investments rather than 
capacity  in  other  countries  oror  interconnection,  which  also  provide  security  of  supply.  To 
ensure  efficient  signals  and  avoid  barriers  in  the  Internal  Energy  Market,  full  cross-border 
participation in market wide mechanisms is therefore essential.  

The  sector  inquiry  demonstrates  that  capacity  mechanisms  should  be  open  to  all  types  of 
potential  capacity  providers  and  feature  a  competitive  price-setting  process  to  ensure  that 
competition  minimises  the  price  paid  for  capacity.  Competition  between  capacity  providers 
should be as large as possible and special attention should be given to new entry. 

Capacity mechanisms should ensure incentives for reliability and be designed to coexist with 
electricity  scarcity  prices  to  avoid  unacceptable  trade  distortions  and  avoid  domestic 
overcapacity. 

Market-wide  capacity  mechanisms  should  be  open  to  explicit  cross-border  participation  to 
ensure  incentives  for  continued  investment  in  interconnection  and  to  reduce  the  long-term 
costs of EU security of supply. 

7.  

Conclusions and next steps 

Given the on-going developments in and reforms of EU electricity markets, the Commission 
will  continue  to  carefully  monitor  the  evolution  of  capacity  mechanisms  and  to  refine  the 
guidance set out in this Final Report and its annexes in the light of its evolving case practice. 
Based on the sector inquiry, eight overall conclusions can be drawn.33  

32 The reliability option capacity product can be particularly valuable for achieving this because it leaves market 
signals intact and once scarcity pricing is implemented does not require an additional penalty for non-delivery to 
be provided through the capacity mechanism. 

33 These conclusions focus primarily on the ability of various types of capacity mechanisms to address problems 
of security of electricity supply in the most cost effective and least market distortive way. Capacity mechanisms 
can  however  affect  the  generation  mix  and  therefore  interact  with  policy  instruments  aimed  at  fostering 
decarbonisation.  As  recognised  by  the  Energy  and  Environmental  Aid  Guidelines  in  paragraphs  (220)  and 
(233)(e), the design of capacity mechanisms should take into account these impacts in order to contribute to the 
overall coherence of EU energy policy in electricity markets.  

16 

 
 
 
                                                            
First,  it  has  become  clear  that  despite  current  overcapacity  in  the  EU  as  a  whole,  there  are 
widespread  concerns  that  in  the  future  insufficient  generation  capacity  will  remain  in  the 
market or come forward in time to ensure adequate security of supply.  

Second, electricity market reforms are indispensable since they help to address concerns about 
inadequate  security  of  supply.  However,  most  Member  States  have  yet  to  implement 
appropriate reforms. The Commission's Market Design Initiative therefore proposes a number 
of  reforms  to  improve  the  functioning  of  EU  electricity  markets  and  the  Commission  will 
require Member States to implement reforms to accompany the planned introduction of any 
capacity mechanism. 

Third,  even  if  a  reformed  market  in  principle  has  the  potential  to  deliver  secure  supplies, 
uncertainty may persist about whether an increasingly volatile market price and rare scarcity 
situations  can  drive  long-term  investment  decisions.  Some  Member  States  have  therefore 
decided  to  introduce  capacity  mechanisms  to  ensure  security  of  electricity  supply.    These 
mechanisms involve State aid and must be notified to the European Commission under State 
aid rules. These mechanisms will be approved if Member States demonstrate their necessity 
and  if  the  distortions  of  competition  that  they  generate  are  minimised  in  line  with  internal 
market and State aid rules, taking account the outcome of the sector enquiry as summarised in 
this Communication.  

Fourth, a rigorous adequacy assessment against a well-defined economic reliability standard 
is crucial for identifying risks to the security of supply and for determining the necessary size 
of any capacity mechanism. Such a rigorous assessment will significantly reduce the risk of 
over-procurement  and  help  to  limit  the  distortions  of  competition  that  capacity  mechanisms 
create. Further EU harmonisation of adequacy assessments will help to increase transparency 
and  build  confidence  in  the  results  of  these  assessments.  The  Commission's  Market  Design 
Initiative  therefore  proposes  to  develop  an  enhanced  EU-wide  adequacy  assessment 
methodology, and annual adequacy assessments to be conducted by the European Network of 
Transmission System Operators for Electricity.  

Fifth, the type of capacity mechanism chosen should address the problem identified: 

  Where  a  Member  State  identifies  a  long-term  risk  that  there  will  be  insufficient 
investment,  market-wide  capacity  mechanisms  (like  those  introduced  in  the  UK  and 
France,  and  planned  in  Ireland  and  Italy)  are  likely  to  be  the  most  appropriate  form  of 
intervention. Market reforms should also be made to limit the State aid needed through the 
capacity mechanism  

  Where a Member State identifies a temporary risk, a strategic reserve is likely to be the 
most appropriate form of intervention, as it is designed to deal with situations where the 
market will deliver security of supply in the longer term, but concerns exist about capacity 
in  the  short  to  medium  term.  Strategic  reserves  should  only  be  deployed  in  emergency 
situations. They should be held outside the market to minimise distortions to its day to day 
functioning.  Strategic  reserves  must  be  transitional  measures,  which  accompany  market 
reforms and are phased out as soon as the reforms take effect. 

  Where  a  Member  State  identifies  a  local  generation  adequacy  issue,  the  choice  of 
mechanism  will  depend  on  the  specific  market  conditions.  In  the  long  run  however,  the 

17 

 
 
local problem should be solved by better grid connections or by more appropriate bidding 
zones  that  introduce  local  electricity  prices  reflecting  the  balance  of  local  supply  and 
demand.   

  Where a Member State is concerned about insufficient development of a flexible demand 
side, an interruptibility scheme may be an appropriate solution, though attention must be 
paid to avoid the scheme developing into a subsidy for energy-intensive industries. 
Irrespective  of  the  mechanism  chosen,  it  should  be  regularly  reviewed  to  check  the 
continued need for the capacity mechanism. 

 

  Administrative capacity payments are unlikely to be appropriate, regardless of the specific 
issues facing a Member State, because the lack of a competitive process means a high risk 
of failing to achieve the capacity objective or of over-compensating.  

Sixth, capacity mechanisms should be open to all types of potential capacity providers. This, 
combined  with  a  competitive  price-setting  process,  ensures  that  competition  minimises  the 
price paid for capacity. The only exceptions are mechanisms for demand response, given their 
particular ability to address underlying market failures, and strategic reserves, which should 
not promote new generation capacity, to minimise market distortions. 

Seventh,  market  wide  capacity  mechanisms  must  be  open  to  explicit  cross-border 
participation  in  order  to  minimise  distortions  to  cross-border  competition  and  trade,  ensure 
incentives  for  continued  investment  in  interconnection  and  reduce  the  long-term  costs  of 
European security of supply. 

Finally,  the  sector  inquiry  has  shown  that  a  number  of  existing  capacity  mechanisms  are 
designed in a way that does not address all competition concerns. The Commission will work 
with Member States to bring all existing capacity mechanisms gradually into line with State 
aid  rules,  bearing  in  mind  the  conclusions  of  the  sector  inquiry.  This  will  help  to  give 
certainty  to  capacity  providers  and  other  economic  actors,  as  well  as  ensure  that  the  right 
signals are provided to investors. 

18