The European Commission has approved, under EU state aid rules, a €9 billion capacity mechanism for electricity supply for Spain. This aid measure aims to ensure that there is sufficient capacity to produce, store or flexibly consume electricity and that electricity production meets the expected demand.
The Spanish measure
Spain notified to the Commission the introduction of a capacity mechanism to ensure security of electricity supply. The measure will run for 10 years as of May 2026.
Under this market-wide mechanism the transmission system operator (‘TSO’) remunerates all the capacity needed to meet the reliability standard, namely the maximum acceptable hours of lost load per year that the system must meet to ensure adequate security of supply. Lost load is the amount of electrical demand that cannot be met due to supply interruptions. The reliability standard has been established based on Spain’s national resource adequacy assessment and approved by the Agency for the Cooperation of Energy Regulators (‘ACER’).
The capacity mechanism will be open to all projects, existing or new, that offer to be available during periods of scarcity. Such projects include electricity generation, demand-side response (parties lowering their consumption in response to reduced supply), and storage (subject to environmental eligibility criteria). The beneficiaries will be selected through transparent and non-discriminatory bidding processes. The budget of the measure is estimated at around €900 million per year, totalling around €9 billion over the 10-year period, subject to the results of each capacity auction.
The measure will be open to projects located in Spain. Spain endeavours to allow participation from all other interconnected Member States as soon as possible. The capacity mechanism will support the development of flexibility services (storage and demand-response operators) where needed, to reach the Spanish national flexibility target according to EU legislation and ACER methodology. The capacity mechanism includes features to ensure sufficient net electricity creation to reach the reliability standard.
The Commission’s assessment
The Commission assessed the Spanish measure under EU State aid rules, in particular Article 107(3)(c) of the Treaty on the Functioning of the EU (‘TFEU’), which enables member states to support the development of certain economic activities subject to certain conditions, and the Guidelines on state aid for climate, environmental protection and energy 2022 (‘CEEAG’). The Commission found that:
- The measure is necessary and appropriate to achieve the objective pursued, in line with the EU Electricity Regulation.
- The measure is proportionate as the level of the aid corresponds to the effective financing needs. In addition, the aid will be granted to projects selected through a transparent, non-discriminatory bidding process, with safeguards to ensure effective competition. Beneficiaries will compete based on the amount of aid requested per MW of capacity available during a scarcity event. As a result, the measure has a limited impact on competition and trade between member States.
- The measure aligns with most of the best practices for capacity mechanisms laid down in the Clean Industrial State Aid Framework (‘CISAF’).
On this basis, the Commission approved the Spanish measure under EU State aid rules.
Background
The Commission’s 2022 CEEAG provide guidance on how the Commission assesses the compatibility of environmental protection, including climate protection, and energy aid measures which are subject to the notification requirement under Article 107(3)(c) TFEU.
The Guidelines create a flexible, fit-for-purpose enabling framework to help Member States provide the necessary support to reach the Clean Industrial Deal objectives in a targeted and cost-effective manner. The rules involve an alignment with the important EU’s goals and targets set out in the Clean Industrial Deal and with other recent regulatory changes in the energy and environmental areas and cater for the increased importance of climate protection. They include sections on energy efficiency measures, aid for clean mobility, infrastructure, circular economy, pollution reduction, protection and restoration of biodiversity, as well as measures to ensure security of energy supply, subject to certain conditions.
Capacity mechanisms have the important objective of ensuring security of electricity supply. Capacity mechanisms need to be well designed to ensure that they do not (i) lead to higher electricity prices for consumers, (ii) give undue advantages to certain energy operators, or (iii) hinder electricity flows across EU borders.
The EU Electricity Regulation establishes rules to ensure the functioning of the internal market for electricity and defines a framework for regularly assessing the forecast level of security of supply in the EU. Whenever a risk is identified, Member States need to review the functioning of electricity market, and consider removing the distortions, which may cause the risk. In case such approach is insufficient to address the identified risk, Member States may introduce a capacity mechanism, subject to design requirements to ensure cost-efficient, cleaner and proportionate measures to deliver security of electricity supply.
For more information
The non-confidential version of the decision will be made available under the case number SA.112483 in the state aid register on the Commission’s competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.
