Short study on capacity mechanisms

Published: 19/07/2012

In the current political debate it remains unclear if the current electricity market design in Germany will ensure security of supply in the future or if additional payments need to be made for adequate power plant capacity. In a short analysis for the German Federal Environment Agency (UBA), Ecofys examines a variety of approaches from different studies and compares the two currently discussed mechanisms: the strategic reserve and security of supply contracts. Both mechanisms are examined in regard to their effectiveness and efficiency and their potential impact on the regulatory market design.

The short study concludes that both instruments can effectively guarantee security of supply. The efficiency of the mechanisms strongly depends on the initial situation on the electricity market and on design details. The strategic reserve is compatible with today’s market design. This approach thus enables an efficient functioning of the markets and is merely subject to small regulatory risks. Security of supply contracts represent a relatively significant regulatory intervention. The efficiency strongly depends on several parameters yet to be defined. This mechanism’s efficiency is therefore subject to major regulatory risks; later readjustments are probable. The introduction of security of supply contracts could at the same time call for further significant modifications of the market design.