REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the assessment of possibilities of streamlining and simplifying the process of applying a capacity mechanism under Chapter IV of Regulation (EU) 2019/943, in accordance with Article 69(3) of Regulation (EU) 2019/943
Date: 2025-03-03
Institutions: Directorate-General for Energy, European Commission
Subjects: EU Member State, EU energy policy, European Union Agency for the Cooperation of Energy Regulators, State aid, electrical energy, energy market, security of supply, technical specification

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 3.3.2025  COM(2025) 65 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the assessment of possibilities of streamlining and simplifying the process of applying a capacity mechanism under Chapter IV of Regulation (EU) 2019/943, in accordance with Article 69(3) of Regulation (EU) 2019/943  
 
 
1.  INTRODUCTION 

Regulation  (EU)  2024/17471  of  13  June  2024  amending  Regulations  (EU)  2019/942  and  (EU) 
2019/943 as regards improving the Union’s electricity market design.  Pursuant to Article 69(3) of 
the amended Regulation (EU) 2019/943 (the ‘Electricity Regulation’), the European Commission 
('Commission’) shall issue a report assessing possibilities to streamline and simplify the process 
for applying a capacity mechanism and come forward with proposals with a view to simplifying 
the  process  of  assessing  capacity  mechanisms  as  appropriate.  Article  69(3)  of  the  Electricity 
Regulation reads as follows:  

“By 17 January 2025, the Commission shall submit to the European Parliament and to the Council 
a detailed report assessing possibilities of streamlining and simplifying the process of applying a 
capacity mechanism under Chapter IV of this Regulation, so as to ensure that adequacy concerns 
can be addressed by Member States in  a timely manner. In that context,  the Commission  shall 
request  that  ACER  amends  the  methodology  for  the  European  resource  adequacy  assessment 
referred  to  in  Article  23  in  accordance  with  the  process  set  out  in  Articles  23  and  27,  as 
appropriate.  

By 17 April 2025, the Commission shall, after consulting the Member States, come forward with 
proposals  with  a  view  to  simplifying  the  process  of  assessing  capacity  mechanisms  as 
appropriate.” 

This report assesses possibilities of streamlining and simplifying the process of applying a capacity 
mechanism under Chapter IV of the Electricity Regulation. 

2.  EU FRAMEWORK ON CAPACITY MECHANISMS 

2.1 EU framework stemming from the Electricity Regulation and CEEAG 

Chapter IV of the Electricity Regulation introduced requirements for the justification of capacity 
mechanisms  and  rules  for  the  implementation  of  such  measures,  to  ensure  that  capacity 
mechanisms  do  not  unduly  distort  the  Union’s  internal  electricity  market  and  that  they  are  not 
introduced as a substitute for necessary market reforms in Member States2.  

The  EU  framework  on  capacity  mechanisms  was  set  up  to  allow  and  better  coordinate  the 
introduction  of  a  temporary  additional  tool  to  enable  the  power  system  to  provide  sufficient 
(including flexible) capacity to meet demand in the medium to long term, including supporting the 
decarbonisation of the energy system and the integration of an increasing deployment of variable 
renewable sources.  Moreover, additional concerns have arisen  as  regards  security of electricity 
supply  following  the  unprecedented  energy  crisis  the  Union  experienced  in  recent  years.  The 

1 Regulation (EU) 2024/1747 of the European Parliament and of the Council of 13 June 2024 amending Regulations 
(EU) 2019/942 and (EU) 2019/943 as regards improving the Union’s electricity market design, OJ L, 2024/1747, 
26.6.2024.  

2 See Articles 20 and 21(1) of Regulation (EU) 2019/943. 

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internal electricity market has been crucial in facing the challenges posed by the crisis, allowing 
Member States to rely on each other’s supplies.  In the aftermath of the crisis and in light of the 
renewed  ambition  as  regards  the  development  of  renewables  and  the  EU  decarbonisation 
objectives, well-designed capacity mechanisms can play an important role to guarantee resource 
adequacy, while at the same time ensuring the well functioning of the internal market, facilitating 
the deployment of the least carbon-intensive technologies and minimising costs for consumers. 
The internal electricity market rules are complemented by the EU State aid provisions, notably the 
State  aid  framework  set  out  in  the  Commission’s  Guidelines  on  State  aid  for  climate, 
environmental  protection  and  energy  2022  (‘CEEAG’)3  which  apply  to  security  of  supply 
measures involving State aid, including capacity mechanisms.  

More  specifically,  the  EU  framework  on  resource  adequacy  and  capacity  mechanisms  can  be 
summarised as follows (Chapter IV of the Electricity Regulation and section 4.8 of the CEEAG): 

2.1.1  Market failure and appropriateness 

Article  20  of  the  Electricity  Regulation  requires  that  Member  States  with  identified  adequacy 
concerns develop an implementation plan setting out how they intend to address the root causes of 
the  adequacy  concern  through  market  reforms  and  submit  it  to  the  Commission  for  review. 
Member States are required to monitor the application of their implementation plans and publish 
the results in annual reports.  

2.1.2  Necessity and proportionality 

A security of supply objective, also called reliability standard, shall be established by the Member 
States according to the rules detailed in Article 25 of the Electricity Regulation. The reliability 
standard is the result of an economic analysis and sets a limit to subsidising overcapacity at the 
expense  of  competition  and  European  taxpayers’  money,  when  the  cost  of  additional  capacity 
exceeds  the  social  welfare  brought  by  such  capacity.  To  that  end,  the  Electricity  Regulation 
mandates ENTSO-E to develop a methodology for calculating the Value of Lost Load (VoLL), 
the Cost of New Entry (CONE) and the reliability standard4. The methodology was approved by 
ACER in October 2020. 

The need for a capacity mechanism and the level of capacity to procure should be assessed based 
on  an  adequacy  assessment5.  To  that  end,  the  Electricity  Regulation  mandates  ENTSO-E  to 
develop a methodology to assess resource adequacy in Europe (the ‘ERAA methodology’6), which 
was approved by ACER in October 2020. Every year ENTSO-E shall, based on that methodology, 
submit  a  proposal  for  the  annual  European  Resource  Adequacy  Assessment  (‘ERAA’)  to  be 
approved by ACER. In line with Article 24 of the Electricity Regulation, Member States can also 

3 Communication from the Commission – Guidelines on State aid for climate, environmental protection and energy 

2022, C/2022/481, OJ C 80, 18.2.2022, p. 1. 

4  Methodology  for  deriving  the  Value  of  Lost  Load  (VoLL),  the  Cost  of  New  Entry  (CONE)   and  the  reliability 

standard: Microsoft Word - VOLL CONE RS - Annex I (europa.eu). 

5 An adequacy assessment is a study of the adequacy of the electricity system to supply current and projected demands 

for electricity. 

6  Methodology  for  calculating  the  European  resource  adequacy  assessment:  Microsoft  Word  -  ERAA  -  Annex  I 
(europa.eu) 

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base  their  capacity  mechanisms  on  national  resource  adequacy  assessments  (‘NRAAs’),  which 
should, however, be based on the ERAA methodology and are subject to a review by ACER in 
case their findings diverge from those in the ERAA. 

The volume procured in reaction to prices of capacity should be established in such a way so that 
the volume procured does not overreach the reliability standard.  

2.1.3  Design features 

The current EU framework for capacity mechanisms sets out a number of requirements that must 
be met. In particular:  

-  The support should be allocated (and the level of support determined) via a competitive 

bidding process (Article 22(1) of Electricity Regulation).  

-  The design of the capacity mechanism should ensure eligibility of all technologies meeting 
objective  technical  and  environmental  requirements.  All  such  technologies  should  be 
eligible  to  participate  in  a  non-discriminatory  manner  (Article  22(1)  of  Electricity 
Regulation).  More recently,  a provision  was introduced to  encourage  Member States  to 
consider  adapting  the  design  of  capacity  mechanisms  to  promote  non-fossil  flexible 
resources such as demand response and storage (Article 19g of Electricity Regulation). 
-  The  availability  requirements  (and  related  penalties)  should  be  sufficient  to  provide  a 
remuneration that incentivizes availability in times of expected system stress (which may 
lead to price spikes in case the system is not sufficiently flexible) and is proportionate to 
the service provided to the power system (Article 22(1) of Electricity Regulation).  

-  Capacity mechanisms should allow for participation of capacities from across the border 
(Article  26  of  Electricity  Regulation).  To  that  end,  the  Electricity  Regulation  mandates 
ENTSO-E to  develop  a  methodology  to  allow for cross-border participation  in  capacity 
mechanisms7, which was approved by ACER in 2020. 

-  The participation of fossil fuel technologies is limited by an emission limit (Article 22(4) 
of  Electricity  Regulation).  More  recently,  a  derogation  was  introduced  for  fossil  fuel 
technologies emitting more than the limit (Article 64 of Electricity Regulation). If granted, 
the  derogation  allows  resources  exceeding  the  emission  limit  to  participate  in  capacity 
mechanisms until 31 December 2028 under certain conditions.  
In case of a strategic reserve, it should be clear that the capacity contracted in the strategic 
reserve will not participate in the electricity markets, even in situations when prices are 
high (Article 22(2) of Electricity Regulation). 

- 

7 Methodology for cross-border participation in capacity mechanisms: Microsoft Word - XBP CM - Annex I - technical 

specifications (europa.eu). 

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2.2 Current approval process  

The required steps under the Electricity Regulation and under State aid rules are usually conducted 
in parallel to facilitate a swift approval:  

1.  The Member State submits to the Commission a market reform plan (implementation plan), 
which  explains  how  the  Member  State  intends  to  solve  market  failures  or  regulatory 
distortions.  The  Commission  shall  give  its  opinion  within  four  months  from  the  formal 
submission of the plan (Article 20 of Electricity Regulation).8 

2.  The  Member  State  should  justify  the  need  for  and  the  proportionality  of  the  capacity 

mechanism based on two elements:  

- 

- 

an adequacy assessment. This can be done using the ERAA, as approved by ACER. 
In case a Member State wants to rely on a NRAA, its assumptions, methodology 
and  results  must  be  verified  by  the  Commission  before  adopting  the  State  aid 
decision.  More  specifically,  where  the  NRAA  identifies  a  concern  that  was  not 
identified  in  ERAA,  the  Member  State  submits9  its  NRAA  to  ACER,  ACER 
delivers  within  2  months  an  opinion  on  whether  the  differences  between  the 
national  and  European  assessments  are  justified  (Article  24  of  Electricity 
Regulation); and; 

a security of supply objective (reliability standard), calculated based on Article 25 
of the Electricity Regulation and the ACER methodology for calculating the value 
of lost load, the cost of new entry, and the reliability standard (Article 23 (6) of the 
Electricity  Regulation).  The  reliability  standard  and  its  methodology  must  be 
verified by the Commission before adopting the State aid decision .  

3.  The Member State must notify the capacity mechanism to the Commission for assessment 

under EU State aid rules.  

3.  STATE OF PLAY OF IMPLEMENTATION OF THE EU FRAMEWORK AND 

MAIN LEARNINGS 

The  EU  framework  for  capacity  mechanisms  has  been  adopted  in  2019  and  since  then  it  has 
required  a  number  of  steps  to  implement  the  framework  fully  (i.e.  the  development  of  EU 
methodologies linked to capacity mechanisms10). Lessons can be drawn from the Commission’s 
workshops, State aid practice and ACER’s security of supply (‘SoS’) monitoring reports11. This 
includes the length and complexity of the process of applying a capacity mechanism. 

8 Member States often discuss with the Commission the draft market reform plan before formally submitting it, which 

facilitates a speedy adoption of the Commission opinion on the plan. 

9  Often  TSOs  and  national  authorities  discuss  the  national  adequacy  assessments  with  ACER  before  formally 
submitting their reports. This helps ACER identify early on any issues related to the reports, in terms of assumptions, 
methodology, etc. 

10 Methodology for determining the VoLL, CONE and reliability standard; methodology for the European resource 

adequacy assessment; and methodologies for cross-border participation in capacity mechanisms 

11 Available here: https://www.acer.europa.eu/electricity/security-of-supply/monitoring-security-electricity-supply.   

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This report is based on the practice applied by Member States when contemplating, adopting and 
operating  a  capacity  mechanism  since  the  adoption  of  the  Electricity  Regulation,  and  the 
Commission’s case practice. The Commission has  adopted  State aid  decisions  on two schemes 
(Belgium12,  Finland13)  since  the  entry  into  force  of  the  Electricity  Regulation.  It  is  in  pre-
notification discussions with a number of Member States on their schemes. 

The report also draws on the feedback submitted by stakeholders to the Commission in its public 
consultation  for  its  proposal  on  the  reform  of  Electricity  Market  Design14,  which  has  been 
summarized in the Staff Working Document accompanying the Commission proposal 15. 

On 22 May 2023 and on 7 June 2023, the Commission organised two workshops with Member 
States  on  “Streamlining  the  EU  capacity  mechanism  framework”.  A  particular  focus  of  the 
workshops  was  on  the  current  ERAA  methodology  and  on  the  capacity  mechanisms  approval 
process. The content of these workshops has also been presented by the Commission and ACER 
to the EU Electricity Regulatory Forum on 8 June 2023 and 27 May 2024. The Forum welcomed 
the initiative to speed up the approval process for capacity mechanisms and to simplify the ERAA 
methodology16.    

Finally, the present report elaborates on certain issues raised in the context of the negotiations of 
the Reform of Electricity Market Design proposal by the co-legislators which led to the 
requirement from the Commission to prepare this report. 

3.1 Market failure and appropriateness 

The Commission has developed and issued Guidance17 for Member States on how to prepare their 
implementation plans. During the assessment of the plans, the Commission seeks the opinion of 
stakeholders on Member States’ proposed reforms and holds meetings or has written exchanges 
with Member States to clarify questions or issues as and if they emerge.  

The  Commission’s  guidance  can  facilitate  the  analysis  of  possible  regulatory  distortions  and 
market  failures  by  Member  States.  The  proposed  structure  in  the  guidance  also  allowed  the 
Commission  to  better  understand  the  functioning  and  the  specific  problems  of  the  electricity 
market in the respective Member State. This enables the Commission to adopt its Opinion on the 

12 This includes two State aid decisions to modify the Belgian scheme, available under case numbers SA.54915 and 
SA.104336. 
13 Available under case number SA.55604. 
14 Available here: https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13668-Electricity-market-

reform-of-the-EUs-electricity-market-design/public-consultation_en.   

15  Commission  Staff  Working  Document,  Reform  of  Electricity  Market  Design,  SWD(2023)  58  final, 

https://energy.ec.europa.eu/system/files/2023-
03/SWD_2023_58_1_EN_autre_document_travail_service_part1_v6.pdf.  

16  See  the  2023  Forum’s  Conclusions  here:  https://energy.ec.europa.eu/events/38th-meeting-european-electricity-
here: 

regulatory-forum-2023-06-08_en. 
See 
https://energy.ec.europa.eu/events/39th-european-electricity-regulatory-forum-2024-05-27_en 

Conclusions 

Forum’s 

2024 

the 

17 Available here: https://energy.ec.europa.eu/system/files/2020-12/market_reform_plan_guidance_final_0.pdf.    

5 

 
 
 
 
 
  
 
 
plan  faster.  To  date,  many  Member  States  (12  out  of  2718) have  already  received  Commission 
Opinions on their implementation plans. 

3.2 Necessity and proportionality 

The ACER methodology for assessing the European resource adequacy assessment was adopted 
by ACER in 2020. The development of an ERAA in line with the ERAA methodology required a 
stepwise  implementation  by  ENTSO-E.  While  ENTSO-E  made  considerable  progress  in  the 
development of the ERAA, ACER did not approve the 2021 and 2022 ERAAs, mainly due to lack 
of  consistency  and  robustness  in  the  assessment.  In  2024,  for  the  first  time,  ACER  approved 
‘ERAA 2023’, concluding that the assessment reached a level of robustness that allows decision 
makers to rely on its results. 

Some Member States19 have been critical about the complexity of the ERAA methodology, and 
the fact that under the current methodology it is ERAA’s ‘central reference scenario’ (with two 
variants  –  with  and  without  capacity  mechanisms)  that  should  be  used  to  identify  adequacy 
concerns. However, it should be taken into account that the ERAA methodology is based on a so-
called ‘probabilistic’ assessment, which already factors in the existence of multiple scenarios and 
their probability of occurring. Despite this, some Member States consider that having only one 
central  reference  scenario  to  depict  the  future  trajectory  is  too  constraining,  as  it  may  give  the 
impression of presenting a “single truth” for the future and placing less emphasis on alternative 
trajectories. Currently, one of the main criticisms of the central reference scenario is that it is based 
on the assumption that the objectives in the national energy and climate plans (‘NECPs’) will be 
fully met, without taking into account that delays may occur in the implementation of the measures 
described  in  the  plans  and  that  such  delays  could  affect  the  system  adequacy.  The  Electricity 
Regulation refers to “central reference scenarios”. This leaves room for introducing an additional 
central  reference  scenario  which  depicts  a  different  pace  of  the  energy  transition.  It  should, 
however, represent a likely representation of the future to allow State aid decisions, that build upon 
these central scenarios to justify the necessity and proportionality of the capacity mechanisms.  

Because ERAA results  were not  available before 2024, Member States  had to  rely  on  NRAAs 
(which must be based on the same ACER methodology as ERAA) to justify and size their capacity 
mechanisms  during  that  period.  According  to  the  ACER  2023  SoS  Monitoring  report20,  some 
Member States have undergone comprehensive adequacy assessments, but ACER also flagged that 
other  Member  States  may  have  applied  ‘oversimplified’  approaches  that  diverged  substantially 
from the ACER methodology. Interestingly, according to ACER’s 2024 SoS Monitoring report, 
many Member States21 already include in their NRAAs additional scenarios to the central reference 
scenario, modelling a different pace of the energy transition. Some Member States22 include in 

18 Belgium, Bulgaria, Finland, France, Germany, Greece, Ireland, Italy, Lithuania, Poland, Spain, Sweden (Estonia is 

currently going through the process).  

19 Also raised during the two workshops with Member States organized in June 2023. 
20acer.europa.eu/sites/default/files/documents/Publications/Security_of_EU_electricity_supply_2023.pdf. 
21 Belgium, Bulgaria, Czechia, France, Spain, Portugal (ACER 2024 SoS monitoring report) 
22 Estonia, Belgium, Finland and Sweden (ACER 2024 SoS monitoring report) 

6 

 
 
 
 
 
 
 
their NRAAs scenarios modelling a reduced availability of resources or  grid capacities23 which 
assess the impact of unlikely conditions with high impact on the electricity system. These scenarios 
consider  deterministic  downside  risks  as  opposed  to  the  probabilistic  approach  foreseen  in  the 
Electricity  Regulation  that  attaches  the  likelihoods  to  uncertain  future  events.  Finally,  the 
Electricity Regulation envisages that resource adequacy assessments may consider sensitivities on 
extreme weather events. A few Member States24 include in their NRAAs such sensitivities. 

The  ACER  methodology  for  calculating  the  VoLL,  CONE  and  reliability  standard  has  been 
adopted by ACER in 2020. Under this methodology, Member States carry out survey studies with 
different groups of electricity consumers to estimate their willingness to pay for capacity, as well 
as of capacity providers to estimate the cost of new capacity. The implementation of the ACER 
methodology  at  national  level  significantly  differs  between  Member  States.25  A  recent  ACER 
consultancy study26 found that the significant divergences in the VoLL (assessed using a survey-
based  approach)  and  CONE  between  the  Member  States  can  likely  not  be  fully  explained  by 
national  specificities  reflecting  structural  differences  in  their  economy.  It  points  to  possible 
implementation  difficulties27  and  the  diversity  of  outcomes  linked  to  a  survey-based  approach. 
These  implementation  issues  can  lead  to  deviations,  potentially  giving  rise  to  over-  or 
underinvestment in security of supply. Implementing the methodology and carrying out the VoLL, 
CONE and reliability standard study in each Member State can also be cumbersome and costly, 
especially  for  small  national  authorities,  who  may  lack  resources  and  staff  to  carry  out  this 
exercise.  

3.3 Capacity mechanism design features 

Based on the case practice, the Commission has identified the following main shortcomings in the 
design of capacity mechanisms.  

First,  some  capacity  mechanisms  contain  requirements  in  the  product  design  that  can  make  it 
difficult for new technologies (such as demand-side response and storage) to participate, hence 
cementing  the  existing  generation  mix28.  These  requirements  include  for  instance:  availability 
requirements and restrictive de-rating factors (ie the percentage of the installed capacity of the unit 
to  characterise  its  effective  capacity),  minimum  eligible  capacities,  long  sustained  delivery 
requirements, and minimum bid sizes. 

Second, in some capacity mechanisms it is important that new entry is fostered (e.g. by providing 
long-term contracts), this can take time in practice. According to ACER’s SoS monitoring report 
2024, incumbent companies as ‘traditional’ capacity providers are the main beneficiaries of the 

23 These situations include for example simultaneous failures of multiple grid elements, a disruption of fuel for 

electricity generation, lower availability of foreign or local nuclear power plants. 

24 Germany, Ireland, Italy and Sweden (ACER 2024 SoS Monitoring report) 
25 ACER SoS monitoring report in 2021 p. 8 
26 https://www.acer.europa.eu/public-events/acer-webinar-implementation-eu-methodology-electricity-adequacy-

metrics 

27 This is because Member States have taken decisions based on a number of factors regarding the design of the 

survey and the processing of associated results 

28 see ACER 2023 Market Monitoring report on barriers to demand response and smartEN Map on resource 

adequacy mechanisms: smarten.eu/wp-content/uploads/2022/01/the_smarten_map_2021_DIGITAL_final.pdf 

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support. Specifically, natural gas power plants are the main beneficiaries of capacity mechanisms 
from 2022 onwards, followed by nuclear and hydro capacity29. At the same time, non-traditional 
capacity providers such as renewables, storage and demand response represent a small share of the 
capacity remunerated by capacity mechanisms, even though it follows a positive growth trend.30 
It is important to remember though that this is in part because market-wide capacity mechanisms 
reflect  the  electricity  mix,  and  the  majority  of  remuneration  goes  to  existing  resources  in  the 
market.  

Third, capacity mechanisms sometimes do not allow for an effective participation of cross-border 
resources  on  equal  footing  with  domestic  capacity  providers,  as  required  by  the  Electricity 
Regulation.31 Except  for  the  Polish  capacity  mechanism,  implementation  of  the  framework  for 
direct  cross-border  participation  is  either  pending  (Belgium,  France,  and  Ireland)  or  simplified 
(Italy) in the rest of the market-wide capacity mechanisms. According to some studies32, this is 
due  to  the  fact  that  the  current  framework  for  cross-border  participation,  including  the 
methodologies  developed  by  ACER,  is  complex  and  difficult  to  implement.  In  addition,  the 
Electricity Regulation stipulates that the maximum allowed entry capacity (MEC) to participate in 
capacity  mechanisms  should  be  calculated  by  the  Regional  Coordination  Centers  (RCCs)  and 
based  on  the  annual  ERAA  assessments.  Until  2023,  Member  States  calculated  the  MECs 
themselves (as the calculation process in the RCCs were not established and the ERAA results 
were not available). In 2024, RCCs produced MEC recommendations for the first time, based on 
the results  of the approved ERAA 2023. However, ENTSO-E  currently  fully  assesses  resource 
adequacy for only four target years out of the ten referred to in the Electricity Regulation. This 
creates a data gap for the calculation of the MECs. 

Fourth,  capacity  mechanisms  in  the  various  Member  States  apply  heterogeneous  penalties  to 
incentivise  capacity  providers  to  deliver  on  their  commitments.  Existing  penalty  regimes  in 
capacity  mechanisms  do  not  always  provide  sufficiently  appropriate  incentives  to  actually 
guarantee  delivery  of  the  contracted  service33.  For  example,  penalties  for  delays  in  building 
capacity or for a lack of availability, are generally much lower than the VoLL used to identify the 
costs of a lack of capacity and justify the capacity mechanisms.  

Finally, Regulation (EU) 2024/1747 (Articles 19g and 19h) allows Member States to introduce 
support schemes for non-fossil fuel flexibility. Given that the objective pursued by such flexibility 
schemes can overlap with the objectives of capacity mechanisms, the interplay between capacity 
mechanisms  and  flexibility  measures  should  be  considered  to  deliver  the  mix  of  reliable  and 
flexible decarbonised capacity necessary for the future energy system in the most cost-effective 
way.  

29 Their relative shares in 2023 were around 32%, 24% and 15% respectively. 
30 According to ACER 2023 SoS monitoring report, renewables other than hydro power plants represent just 6 GW 

or 3% of the total capacity; DSR represents 4 GW, whilst storage is still low at 300 MW in 2022 

31 ACER 2023 SoS monitoring report 
32 Menegatti, E., Meeus, L. (2024),FSR Policy Brief: An easy fix to streamline capacity 

markets: https://hdl.handle.net/1814/77492 

33 ACER 2023 SoS monitoring report 

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3.4 Public consultation, transparency and evaluation 

Since 1 July 2023, the State aid rules require Member States to consult publicly  for 4-6 weeks 
(depending  on  the  scheme’s  budget)  on  any  security  of  supply  measures  requiring  State  aid 
approval34. This requirement was introduced (along with a similar requirement for decarbonisation 
schemes) to ensure that stakeholders are aware of any planned measures and have an opportunity 
to scrutinize and provide input about the design and key parameters of the planned state-financed 
capacity  mechanisms.  For  example,  this  enables  market  participants  to  provide  views  on  pre-
qualification and capacity availability requirements and penalties, which, as described above, may 
act as barriers to the participation of certain resources, reducing competition and increasing costs. 
However,  these  requirements  also  add  a  procedural  step  for  national  authorities  wishing  to 
introduce capacity mechanisms.  

3.5 Duration of the approval process  

Member  States  have  considered35  the  process  for  adopting  State  aid  decisions  on  capacity 
mechanisms as a lengthy process. The current capacity mechanism approval process generally has 
a  minimum  duration  of  6  months.  However,  case  practice  has  shown  that  pre-notifications 
discussions with Member States tended to last longer, i.e. up to 2 years. This was not only due to 
the “pilot” character of the first procedures under the new provisions of the Electricity Regulation 
(Articles 20-27), but is also due to the fact that during the pre-notification phase, the design of the 
scheme  tends  still  to  be  in  the  making:    initial  ideas  are  still  subject  to  discussion  within  the 
Member State and, several rounds of internal exchanges with national stakeholders, as well as with 
the Commission’s services, tend to be necessary to finalise the detailed design of a measure and 
ensure it meets the requirements in EU legislation.  

4.  COMMISSION PROPOSALS FOR STREAMLINING AND SIMPLIFYING 

4.1 Reviewing the ACER methodology for the ERAA 

Pursuant to Article 69(3) of the Electricity Regulation, the Commission shall, based on this report, 
request ACER amends the methodology for the ERAA as appropriate. To address the concerns 
related to the ERAA methodology set out above, ACER (in cooperation with ENTSO-E) should 
review its methodology to assess adequacy in the Union and consider reviewing the methodology 
for calculating the adequacy metrics, to reduce the implementation burden on the Member States 
and ease the harmonized implementation of the EU framework.  

The methodology should be updated and streamlined in a number of areas to ensure the robustness 
of  the  framework,  and  its  ease  of  implementation  by  stakeholders  (ENTSO-E  at  EU  level  and 

34 Point 348 CEEAG. 
35 Member States were preliminarily consulted in June 2023 when the Commission organised two workshops for 

Member States, as well as during the Electricity Regulatory Energy Forum in Rome 2023. 

9 

 
 
 
 
 
 
 
 
transmission system operators (‘TSOs’) or other entities at national level), reflecting on the lessons 
learnt from the case practice. 

The Commission’s request to ACER only defines the scope of such simplification of the ERAA 
Methodology. It is for ENTSO-E to submit the detailed draft proposals of the methodology for 
ACER’s approval, in line with Article 27 of the Electricity Regulation. 

4.1.1  The scenario framework 

According  to  the  ERAA  methodology  (Article  3),  the  identification  of  the  adequacy  concerns 
should be based on one central reference scenario (with variants36 including or excluding approved 
capacity mechanisms), while additional sensitivities are only meant to assess the robustness of the 
identified adequacy concern.  

The current central reference scenario is based on the delivery of targets in the NECPs, consisting 
of  political  objectives  and  targets.  The  NECPs  describe  the  trajectories  of  the  future  installed 
capacity  (renewables,  storage)  and  demand  (electrification,  energy  efficiency)  according  to  the 
EU’s ambitious targets. The Member States’ NECPs represent the best available plan depicting 
the future of the energy system during the energy transition. However, this scenario does not take 
into account that delays may occur in the implementation of the measures described in plans and 
that such delays could affect system  adequacy.   In addition, the NECPs are updated every five 
years and the original trajectories may deviate from the former plan. For example, the development 
of new assets linked with electricity production (e.g. RES, nuclear), electricity demand (e.g. H2 
electrolysis)  and  crucial  infrastructure  (national  grid,  connection  of  production  assets, 
interconnections) may diverge from the planned in terms of composition or pace.  

That is why it could be envisaged to review the scenario framework and introduce an additional 
‘trends & projections scenario’ in the methodology for the identification of adequacy concerns that 
Member States could use to justify the introduction of a capacity mechanism. This would have the 
benefit of allowing to consider an alternative view of the future, e.g. one where renewables, nuclear 
or storage are installed at a different pace and electrification takes place at a different pace. 

This ‘trends & projections scenario’ also determined in a probabilistic manner, would be a scenario 
which  would  consider  the  actual  progress  towards  delivering  Member  States’  NECPs.  This 
includes observed evolution of supply as well as demand (considering e.g. the electrification pace 
and energy efficiency) and network development, taking into account the risk for some countries 
that the delivery on the objectives and targets will not materialise on time37. For this reason, the 
second scenario should not include other risks to avoid distorting its purpose, which is to capture 
the actual pace of energy transition. This purpose also requires that the trends used in the second 
scenario  are  not  more  conservative  than  the  Member  States’  projections  including  policies  and 

36 Regulation (EU) 2024/1747 strengthened the role of capacity mechanisms in addressing adequacy problems. As a 
result, the variant that includes these approved capacity mechanisms becomes more relevant than the variant that 
does not consider those mechanisms. This could inform the efforts to streamline the methodology. 

37 https://www.eea.europa.eu/themes/climate/trends-and-projections-in-europe 

10 

 
 
 
 
 
 
 
measures  already  adopted  and  implemented.  Moreover,  in  this  expansion  of  the  scenario 
framework, it is essential to define appropriate comparative indicators to delineate the differences 
between central reference scenarios; they will also enable stakeholders to effectively compare the 
main assumptions over the years. The additional scenario must strike a careful balance between 
realism  and  conservatism,  in  order  to  avoid  a  risk  of  increasing  costs  for  consumers  without 
delivering meaningful additional benefits.  

For the above reasons, the additional scenario and its assumptions, notably based on historic data38 
and  current  projections39,  which  differ  from  the  objective  and  targets  put  forward  by  Member 
States to ensure compliance with the Union’s 2030 energy and climate targets and its 2050 climate 
neutrality  objective,  should  be  subject  to  a  thorough  public  consultation.  ACER  should  give 
guidance  on  how  this  public  consultation  should  be  done.  The  TYNDP  Stakeholder  Reference 
Group is invited to express its opinion on the consistency of ERAA scenarios with the TYNDP 
scenario framework. 

It is important to recall that there would continue to be a role for NRAAs to make sure that specific 
developments identified by Member States can be taken into account when designing a capacity 
mechanism. 

4.1.2  The selection of target years 

The ERAA methodology (Article 4.1) requires the modelling of each year over a 10-year horizon 
(based on the requirement of the Electricity Regulation). Having results for each year is important 
for decision making on the necessity of a capacity mechanism as well as for the calculation of the 
maximum  entry  capacity  for  cross-border  participation  in  capacity  mechanisms.  However, 
stakeholders  (ENTSO-E)  have  faced  computational  difficulties  in  modelling  each  of  these  10 
years.  In a spirit of simplification, the model  could  in  the future  explicitly model for  a  limited 
number of target years which are crucial for decision-making for capacity mechanisms (including 
calculation  of  the  maximum  entry  capacity),  while  other  target  years  can  be  modelled  through 
extrapolation.  

4.1.3  The role of the economic viability assessment 

According  to  the  ERAA  methodology  (Article  6),  the  economic  viability  assessment  models 
market entry and exit decisions. Currently, the ERAA model measures the economic viability of 
resources using the so-called ‘system cost’ approach which minimizes overall system costs, that 
is the sum of fixed costs and total operating costs. Such an approach, optimizing the costs for the 
entire European system in a single step, has given rise to significant computational constraints and 
to inconsistencies between the capacity entry and exit decisions and the estimated adequacy risks. 

38 e.g.; following Article 18 of the Governance Regulation 
39 Including policies and measures under discussion having a realistic chance of being adopted. 

11 

 
 
 
 
 
 
 
 
 
 
To  address  these  concerns,  the  economic  viability  of  resources  should  be  based  on  a  ‘revenue 
maximization’ approach which measures the difference between expected revenues and costs for 
each capacity resource40. This is already applied by some TSOs in Europe. Allowing to break down 
the  economic  viability  assessment  into  smaller,  computationally  less  demanding  iterations,  is 
leaner (as an ‘iterative approach’41) and better models the capacity entry and exit decisions. The 
ERAA methodology should contain a post-process in order to enable the direct identification of 
the volume to procure for each bidding zone linked to the adequacy gap identified in the model. 
Moreover,  this  approach  will  ease  the  application  of  flow-based  capacity  calculation,  which 
appropriately  reflects  cross-border  trade  opportunities  and  underlying  welfare  gains.  A  further 
simplification could relate to revising the number of climate years modelled in the probabilistic 
assessment while ensuring it accurately represents the resource adequacy need. 

Currently, ERAA models investment behaviour by calculating a CONE (cost of new entry) using 
two  key  parameters:  the  weighted  average  cost  of  capital  (WACC)  and  hurdle  rates  (i.e.  the 
minimum  rate  of  return  required  by  fund  providers  (shareholders  and/or  creditors)  to  finance 
investment  in  the  reference  technology  in  the  considered  geographic  area).  Some  stakeholders 
highlighted  concerns  that  the  assessment  may  potentially  be  too  optimistic  on  investment 
behaviour, i.e. suggesting that risk-averse investors would not be able to finance a project based 
on extreme price spikes occurring in a few hours per year. Therefore, special attention should also 
be given to the conditions for investment decision-making process, by appropriately modelling the 
risk aversion of a rational investor via ‘hurdle rates’.  

4.1.4  Cross-zonal capacities 

The current ERAA (Article 4.7 of ERAA methodology) models cross-zonal exchanges from third 
countries in two distinct ways: i) for systems which are not modelled at all42 (Russia, Belarus), no 
cross-zonal  exchange  is  assumed;  ii)  and  for  systems  which  are  ‘not  explicitly  modelled’ 
(Morocco,  Moldova,  Tunisia,  and  Ukraine)43,  cross-zonal  exchanges  must  reflect  market 
conditions  and  expected  operational  practices  (including  specific  connection  agreements). 
Assumptions linked to those cross-zonal exchanges from third countries should be continuously 
monitored by ENTSO-E (with ACER oversight) to reflect the level of risk associated with these 
systems. 

40 The economic viability assessment should be adapted to better capture revenues relevant for new clean flexible 

resources (including those from ancillary services markets). To that end, close interaction with the relevant 
stakeholders that understand the actual business models of these technologies is highly important. 

41 Economic dispatch simulation calculates revenues and costs for different resources then investments are adjusted 
based on the results and dispatch is run again followed by adjustment of capacities etc. until market equilibrium. 

42 These systems are not modelled at all, ie no cross-zonal exchanges are assumed from these third countries. 
43 These systems are modelled as exogenous best estimates of cross-zonal exchanges with modelled zones. 

Data is provided by TSOs having direct interconnections with those systems and should reflect expected market 
conditions and operational practices (including specific connection agreements). 

12 

 
 
 
 
 
 
 
 
 
4.1.5 

Impact of measures contained in Member States’ implementation plans 

The ERAA methodology (Articles 3.3 and 5.14) contains a requirement that the assessment should 
align  with  the  measures  and  actions  defined  by  Member  States  in  the  implementation  plans 
pursuant to Article 20(3) of Electricity Regulation. In a spirit of simplification (and in line with 
Article 23(5) of the Electricity Regulation), the assessment could in the future - instead of aligning 
with the measures contained in Member States implementation plans - anticipate the likely impact 
of the measures contained in those plans. 

In addition, in case an indirect restriction to wholesale price formation pursuant to Article 10(4) of 
the Electricity Regulation is identified (and modelled in ERAA), the ERAA methodology (Article 
3.7)  requires  the  assessment  to  contain  a  mandatory  sensitivity  to  identify  whether  indirect 
restrictions to price formation may constitute possible sources of resource adequacy concerns. In 
the spirit of simplification, this sensitivity could become non-mandatory.  

4.1.6  De-rating factors 

The  ERAA  methodology  (Article  4.4)  contains  requirements  on  availability  of  supply  sources. 
There should be a common view on the definition of de-rating factors for different technologies. 
These de-rating factors should be made publicly available by ENTSO-E (with ACER oversight). 

4.1.7  Contribution of demand response and storage 

The ERAA methodology (Articles 4.3 and 4.5) contains requirements on how to model demand 
response and storage. However, non-fossil flexible technologies have not been in the focus of the 
ERAA implementation yet. As the energy transition goes on and their business model develops, 
sharpening the ERAA implementation towards the consideration of non-fossil flexible resources, 
and taking account of any resources supported under flexibility measures, becomes more important 
(e.g. better reflection of ramping constraints for the economic dispatch model, better taking into 
account ancillary services revenues44 for the economic viability assessment, better estimation of 
local resources e.g. heat pumps, EV penetration etc), ERAA can not only properly account for the 
contribution of demand-side response and storage, but also provide relevant input to the flexibility 
needs assessment hence avoiding double work for Member States.  

4.1.8  Transparency and stakeholder interaction 

The ERAA methodology (Articles 9 and 11) already contains requirements on transparency and 
stakeholder  interaction.  Efforts  to  increase  transparency  should  continue.  For  example, 
stakeholders  and  regulators  have  requested  the  publication  of  ERAA  results  indicating  the 
distribution  of  energy  not  served  per  hour.  Such  information  is  key  for  Member  States  and 
stakeholders to understand the extent to which a scarcity event constitutes a serious threat to the 
security  of  supply  and  should  be  included  in  the  ERAA.  Inputs  (Article  5  of  the  ERAA 
methodology) that are not Member State specific but used as default values across bidding zones 

44 The ERAA methodology (Article 6.9(b)) allows the consideration of all revenue streams, including revenues 

from ancillary services crucial for storage technologies and demand response. This should be made mandatory. 

13 

 
 
 
 
 
 
in the ERAA model (e.g. cost indicators of resources, derating factors) should be made publicly 
available by ENTSO-E (with ACER oversight). 

4.2 Streamlining the Commission approval process for capacity mechanisms 

An approval decision from the Commission is required before State aid can be legally granted via 
a capacity mechanism. Adopting a State aid decision for a national capacity mechanism requires 
assessing its compatibility with the requirements in the Electricity Regulation (Articles 20 to 27) 
and in Section 4.8 of CEEAG.  

To respond to Member States’ concerns and speed up the approval of capacity mechanisms, the 
Commission proposes to develop a simplified State aid procedure for capacity mechanism designs 
that  follow  pre-defined  off-the-shelf  models  based  on  best  practice  and  that  can  therefore  be 
expected to limit competition distortions. This simplified procedure will be proposed as part of the 
new  State  aid  Framework  mentioned  under  Pillar  2  of  the  Competitiveness  Compass 
Communication45.  

To enable the required legal assessment under the Electricity Regulation and the State aid rules, 
and to provide the guidance necessary in relation to what are usually complex national designs, 
this simplified procedure would cover a necessary set of design features. While a State aid decision 
would remain necessary to approve a capacity mechanism, discussions with the Commission could 
be significantly accelerated for Member States that follow the simplified procedure. 

The  proposed  simplified  procedure  would  cover  the  two  most  common  capacity  mechanism 
designs – one for market-wide central buyer capacity mechanisms and one for strategic reserves – 
and would summarise the key elements which Member States are required to provide in the form 
of a checklist.  

Where the Member State’s envisaged capacity mechanism design aligns with all elements in the 
checklist, the Commission would proceed with a swift adoption of a State aid decision, without the 
need for further discussions about the design. 

The requirements for this simplified process may contain the following: 

•  Member States can apply the simplified process if they rely on the most recent ERAA report  
(approved by ACER) to demonstrate the necessity of the scheme. As outlined under point 
4.1, the ERAA methodology will in the future be simplified and additional flexibility will 
be provided to Member States to justify their scheme on the basis of ERAA.   

•  As  an  additional  simplification  to  accelerate  the  approval  process  of  the  capacity 
mechanism, the Commission will request ACER to calculate a reference value of lost load 
for all Member States, leveraging current experiences to increase efficiency and enhance 

45 29.1.2025 COM(2025) 30 final: eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52025DC0030 

14 

 
 
 
 
 
 
 
 
 
 
  
 
 
the  consistency  of  the  calculation.  ACER  should  also  make  available  reference  cost 
indicators at the EU level considering existing studies on the cost of new entry and best 
available  economic  studies.  These  reference  values  (which  will  be  made  immediately 
available  by  ACER)  will  enable  Member  States  to  establish  their  reliability  standards 
swiftly if they decide to consider ACER’s calculations.  

•  Regarding the overall process to approve capacity mechanisms, Member States that have 
not yet adopted their implementation plan, can submit their plan to the Commission well 
in advance of their proposed scheme. Member States can implement the proposed reforms 
contained in their plan in parallel to the introduction of the scheme. Member States that 
have  already  submitted  their  implementation  plan  and  received  the  opinion  from  the 
Commission are not required to issue a new implementation plan. 

•  Finally, regarding the design of the scheme, it should comply with a necessary set of design 
features. The Commission will detail these best practices as part of the proposal for the new 
State aid framework.  

5.  CONCLUSION AND NEXT STEPS 

Based on the review of the procedure related to the application for capacity mechanisms under 
Chapter IV of the Electricity Regulation, the Commission concludes that a number of elements 
can be streamlined and, under some conditions, the procedure can be simplified. 

Pursuant to Article 69(3) of the Electricity Regulation, the Commission shall, by 17 April 2025, 
come  forward  with  proposals  with  a  view  to  simplifying  the  process  for  assessing  capacity 
mechanisms, as appropriate. 

Such proposal is detailed out in  Annex I of draft Communication from the Commission on the 
Framework for State aid measures to support the Clean Industrial Deal (Clean Industrial Deal State 
Aid  Framework  –  CISAF).  Member  States  will  be  consulted  on  the  proposal  ahead  of  their 
adoption.  

The Commission's position on this report is without prejudice to any position it may take on the 
compatibility of any national implementing measure with EU law. 

15