Capacity mechanisms complicate agreement on new electricity market design. Will they also apply to coal plants?

The proposed new electricity market designis being complicated by a dispute over the future form of capacity mechanisms. The new proposal would allow coal-fired power plants to receive support under predefined conditions. The move is being criticised primarily because it conflicts with the European Union’s environmental policy. 

The European Union is currently preparing a proposal for a new electricity market design that should prevent a repeat of the energy crisis of 2021 and 2022. However, the proposal also aims to adapt the market to new environmental targets, including a 55 % reduction in CO2 emissions by 2030 and achieving climate neutrality by 2050.

Considerable controversy has therefore been sparked by a proposal from Sweden, which suggested an exemption that would allow coal-fired power plants to participate in capacity mechanisms. Naturally, a number of countries, led by the Netherlands, oppose the exemption. Poland, whose energy sector is based on electricity generation from hard coal and lignite, is among its supporters.

The European Union has set emissions limits for sources that can be included in capacity mechanisms. It intended thereby to ensure that coal-fired and other emissions-intensive sources would no longer be kept operating.

At the same time, this measure is intended to encourage Member States to seek cleaner sources for capacity mechanisms as well. The limit is 550g of CO2 for every kWh of electricity generated.

The exemption should apply only if strict conditions are met. One of these should be that tenders to fill capacity mechanisms have failed to attract enough generators from low-carbon sources.

Once Member States agree on the final form of the electricity market, the changes will need to be approved by the European Parliament. The aim is to approve the new market design before the elections to Parliament, which will take place the following year.