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European Commission - Press release

State Aid: Commission launches sector inquiry into mechanisms to ensure electricity supplies

Brussels, 29 April 2015

The European Commission has launched a state aid sector inquiry into national measures to ensure that adequate capacity to produce electricity is available at all times to avoid black-outs (so-called "capacity mechanisms"). The inquiry will gather information on capacity mechanisms to examine, in particular, whether they ensure sufficient electricity supply without distorting competition or trade in the EU Single Market. It complements the Commission's Energy Union Strategy to create a connected, integrated and secure energy market in Europe. Please refer to the Factsheet for more detailed information.

An increasing number of Member States are introducing capacity mechanisms to encourage investment in power plants or provide incentives that power plants continue to operate, with the purpose of ensuring the supply of electricity meets demand at all times. The Commission recognises that such public measures may in some situations be justified and its 2014 Guidelines on state aid for environmental protection and energy for the first time provided criteria for the assessment whether capacity mechanisms are in line with state aid rules. Member States in the first place have to be able to demonstrate that the measures are necessary. In addition they need to ensure that capacity mechanisms are designed in a way that they do not distort competition in the EU's Single Market – for example, they should not unduly favour certain producers or types of technology, or establish barriers that hinder electricity from flowing between one EU country and another.

The sector inquiry, the first under EU state aid rules, will initially request information on a representative sample of Member States that have capacity mechanisms in place or are considering them, namely: Belgium, Croatia, Denmark, France, Germany, Ireland, Italy, Poland, Portugal, Spain and Sweden.

Commissioner Margrethe Vestager, in charge of competition policy, said: "Governments have a legitimate interest to ensure that there is sufficient electricity supply – households and industry should not face black-outs. My role is to safeguard that public measures to underpin investment in electricity supplies do not unduly favour particular producers or technologies, or create obstacles to trade across national borders. For example, in some cases it might be more efficient to invest in improving electricity grid connections between EU countries than to build new power stations."

"This sector inquiry sends a clear signal to Member States to respect EU state aid rules when implementing capacity mechanisms, and contributes to the Commission's goal to build a true Energy Union in Europe."

The need for capacity mechanisms

An increasing number of Member States has voiced concerns that electricity supplies may be unable to meet demand by 2020 as a result of insufficient investment due to market uncertainties and regulatory interventions. An additional issue is that demand needs to be fully met by supply also in times when there is a shortfall from variable renewable sources (e.g. as a result of less wind or sun at a given time).

Capacity mechanisms are measures taken by Member States to ensure that electricity supply can match demand in the medium and long term. They are designed to support investment to fill the expected capacity gap and ensure security of supply. Typically, capacity mechanisms offer additional rewards to capacity providers, on top of income obtained by selling electricity on the market, in return for maintaining existing capacity or investing in new capacity needed to guarantee security of electricity supplies. Capacity mechanisms can potentially support not only power generation but also demand response measures (e.g. incentives to households and businesses to reduce electricity consumption at peak times).

Scope of the sector inquiry

The Commission will send different sets of questions to selected public authorities and market participants initially in eleven EU countries (Belgium, Croatia, Denmark, France, Germany, Ireland, Italy, Poland, Portugal, Spain and Sweden). It will then assess the replies and invite comments on its preliminary findings before the end of 2015 and plans to publish the final results mid-2016.

Through the sector inquiry the Commission wants to better understand the capacity mechanisms already implemented or under consideration. It will also assess and identify if there are certain design features of capacity mechanisms that distort competition between capacity providers or hinder trade across national borders.

The sector inquiry will supplement and support implementation of the Guidelines on State aid for environmental protection and energy that entered into force in July 2014. Moreover, the sector inquiry will complement the Commission's legislative proposal on electricity market design under the EU's Energy Union Strategy.

More information on the sector inquiry into capacity mechanisms is available at:

http://www.ec.europa.eu/competition/sectors/energy/state_aid_to_secure_electricity_supply_en.html

IP/15/4891

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