***Check against delivery***
One year ago the Commission announced the launch of the first State aid sector inquiry into so-called "capacity mechanisms".
Member States introduce capacity mechanisms to secure electricity supply and avoid power shortages. This is clearly an important objective.
But the potential implications of capacity mechanisms are equally important. They can affect electricity prices, give undue advantages to certain energy operators and hinder electricity flows across EU borders.
This is what the sector inquiry is examining. The knowledge gained will both feed into the Commission's enforcement of EU State aid rules and planned legislative proposals, which are part of the Commission's Energy Union Strategy.
Over the past 12 months, my team has carefully analysed information on 28 capacity mechanisms that we found in 11 EU countries - Belgium, Croatia, Denmark, France, Germany, Ireland, Italy, Poland, Portugal, Spain and Sweden.
I am here today to present our interim report with three main findings:
First, properly functioning electricity markets should deliver sufficient electricity supplies. If they don't, capacity mechanisms may be necessary but they cannot be a substitute for real market and regulatory reform.
Second, it is a real concern that many Member States studied have not carefully analysed the need for capacity mechanisms before introducing them.
Third, capacity mechanisms in many Member States seem to benefit only specific energy operators. For example, we see that some capacity mechanisms are only open to specific technologies and to energy operators within the borders of the Member State.
Some capacity mechanisms therefore risk being very costly for taxpayers and risk creating significant obstacles to an integrated energy market in Europe.
Before explaining these concerns in more detail, I would like to give you a quick snapshot of capacity mechanisms in the EU.
The majority of the Member States studied have introduced several capacity mechanisms in parallel. For example, Spain alone currently has four capacity mechanisms in operation.
There are various types of capacity mechanisms. Broadly, one can differentiate between targeted mechanisms, which only benefit specific operators. These include the State paying existing power plants to remain on the grid and measures designed to help build just one power plant. And on the other hand, there are market-wide mechanisms, which are in principle open to participation from all categories of capacity providers.
Almost two thirds of the 28 capacity mechanisms we identified are targeted. However, recently, there is a general trend towards market-wide schemes.
Let me now explain in more detail our initial findings on the necessity of capacity mechanisms, and on their design.
Properly functioning electricity markets are of course the most cost-effective way to ensure sufficient electricity supplies. But electricity markets in certain regions of the EU today do not function as well as they should. They suffer from both market and regulatory failures. These failures prevent the price signals needed to stimulate new investment and cut into the returns of companies selling power on the electricity market.
The Commission is working hard, together with Member States, to address these failures, through the Energy Union Strategy and a forthcoming proposal on electricity market design. And some Member States are also taking steps to improve the functioning of their national electricity markets.
Capacity mechanisms are not a shortcut that can replace this ongoing work. But the reforms of EU electricity markets are not yet complete, and as things stand, capacity mechanisms can be necessary to secure electricity supply in some cases.
However, the decision to introduce a capacity mechanism must be based on a thorough analysis. Our inquiry shows that, unfortunately, many Member States fail to assess the need for capacity mechanisms in an adequate, consistent way. On the one hand, the methods used to assess security of supply vary widely between Member States. This makes comparison and cooperation across borders difficult. On the other, assessments tend to take a purely national perspective, ignoring possible electricity deliveries from neighbouring countries.
This brings me to my second point: even if capacity mechanisms may in some cases be necessary, Member State practices in designing these schemes can significantly improve.
Let me give you three examples.
First, some Member States seem to introduce capacity mechanisms as a quick fix, without sufficiently considering longer-term implications. As a result, some mechanisms do not effectively target the problems they are supposed to address. They can even make the problem worse. For example, if a Member State subsidises one specific technology, this can hurt other technologies, which may then also need state support.
Second, Member States often do not seem to consider all options when deciding how to tackle a capacity problem. For example, existing capacity mechanisms often target only specific operators. Widening that group to include all potential capacity providers, including consumers who are willing to reduce demand when electricity is scarce, would increase competition and reduce the cost for electricity consumers. Here we fortunately see some encouraging signs: capacity mechanisms proposed recently by Member States tend to be more open and allow all categories of capacity providers to play their part.
Third, Member States often fail to take into account the potential contribution of capacity located in a neighbouring country. Out of the 28 capacity mechanisms we found, only three are in principle open to operators located abroad. And even in these cases, there are narrow restrictions. A more common approach to security of supply would be valuable, for everyone. In some cases, it is simply more efficient improve electricity grid connections between EU countries than to build new power stations or pay existing power plants not to close.
What will the Commission do about these issues?
As already mentioned, the report we publish today is an interim report. I hope it gives Member States and other stakeholders food for thought, and I look forward to seeing their reactions and input on our findings.
The Commission will on the basis of feedback received issue a final report by the end of this year.
Our findings as part of the sector inquiry do not prejudge the Commission's assessment of the compatibility with EU state aid rules of any individual capacity mechanism. Our case work continues in parallel to the fact gathering under the state aid inquiry. The Commission has an ongoing investigation into the planned capacity mechanism in France and is also looking into measures in other Member States.
Furthermore, important work is ongoing to improve the design of electricity markets led by my colleagues Maroš Šefčovič and Miguel Arias Cañete. The Commission intends to present legislative proposals on that by the end of this year.