Following Spain's request to implement a capacity mechanism for electricity supply, the European Commission has given the green light to the 9 billion euro system designed by the Ministry for Ecological Transition. The objective of this tool is to offer stable investment signals so that energy storage and other solutions capable of providing firmness to the system, such as demand management, are structurally incorporated into the Spanish electricity market.
The mechanism, which will operate for the next ten years, will remunerate the capacity needed to meet the so-called reliability standard. This indicator refers to the maximum acceptable number of hours of lost load per year that the electricity system can assume to guarantee adequate security of supply. In practice, this "lost load" represents the amount of electricity demand that cannot be met due to supply interruptions or insufficiencies.
Until now, power plants primarily received income for the energy actually produced and injected into the grid. With the new system, facilities will also be remunerated for being available to come into operation when the system needs them. The approach follows a logic similar to that of a backup service: payment will be made not only for generating electricity but also for ensuring that there is capacity ready to act in times of tension or scarcity, even if it is not ultimately used.
The ultimate goal of the mechanism is to strengthen security of supply in a context of increasing penetration of renewable energies. The Government maintains that the massive deployment of technologies such as solar and wind, whose production depends on variable meteorological factors, requires complementary instruments to ensure grid stability and avoid risks of shortages when renewables are not sufficient to meet demand.
In this context, the mechanism approved by Brussels aims to ensure that there is always sufficient capacity to produce electricity, store it, or even reduce consumption in critical situations. The European Commission considers that the Spanish design complies with EU rules on State aid, as it is a measure that is "necessary, proportionate, and technologically neutral".
Competitive auctions and technological backup
The economic contributions will not be exclusively directed at traditional electricity companies. The system will distribute remuneration among three large groups of actors capable of guaranteeing availability during times of scarcity.
On the one hand, conventional electricity generators capable of providing firm energy will be able to participate, provided they comply with the carbon emission limits set by European regulations. On the other hand, the door will be opened to energy storage facilities, such as large batteries or reversible hydroelectric power plants, which allow electricity to be stored for later release when needed. Finally, large industrial consumers or demand aggregators who agree to temporarily reduce their electricity consumption in exchange for economic compensation will also be able to compete.
Access to the mechanism will be through competitive auctions. Companies will compete by offering the lowest possible price for each megawatt of capacity made available to the system. Those operators who request lower remuneration to guarantee this availability will be awarded the contracts.
The volume of capacity to be auctioned will not be set arbitrarily. It will be linked precisely to the reliability standard defined by the electricity system, based on the calculation of so-called "lost load hours". With this, the Executive seeks to adjust the real backup needs to the forecasts of demand and renewable penetration.
The mechanism is not configured as a one-off aid, but as a stable architecture based on three types of auctions with different time horizons. The design aims to attract both existing facilities and new investment projects that require long-term financial visibility.
The main auction will be held five years before the start of service provision. Existing facilities will be able to commit for one year, while new investments — such as large battery storage systems — will be able to access contracts of up to fifteen years in duration. The Executive considers this time horizon to be essential to guarantee the economic viability of capital-intensive technologies and facilitate their financing.
Secondary market and operational flexibility
Alongside the main auction, the scheme will include an annual adjustment auction intended to correct possible short-term deviations. In this case, the availability commitment will be for twelve months. Additionally, a transitional auction will be enabled, the objective of which will be to cover the existing security gap until the projects awarded in the first major call come into operation.
The design also incorporates a secondary capacity market. Through this system, companies that have obtained contracts will be able to exchange availability rights and obligations among themselves. The objective is to provide the mechanism with greater operational flexibility and reduce non-compliance risks.
Thus, if a facility suffers a breakdown or cannot provide the committed service, it will be able to temporarily transfer its obligation to another available operator, avoiding penalties and ensuring that the electrical system continues to have the committed backup. The Ministry argues that this component provides the scheme with greater efficiency and resilience.
Sources from the Ministry for Ecological Transition explain that the cost of the mechanism will fall on the electricity retailers and direct market consumers, that is, those companies that acquire electricity directly from the generation mix. The financing of the 9 billion euros will not come from the General State Budgets, but will be transferred to the electricity bill through a specific unit price.
The Government maintains that this design aims to introduce economic signals that encourage more efficient consumption. In practice, consumers with higher demand during peak hours for the system will bear a higher cost associated with the mechanism.
One of the key pieces of the scheme is that not only facilities capable of injecting energy into the grid will receive remuneration. So-called demand aggregators, companies that group multiple consumers and commit to reducing electricity consumption at critical moments to alleviate pressure on the system, will also be able to participate.
With this, the Executive seeks to move towards a more flexible electricity model, where not only how much is generated matters, but also the capacity of the entire system to adapt in real time to the supply and stability needs of the grid.