A new policy brief from the Regulatory Assistance Project (RAP), A Regional Approach to Resource Adequacy: The Participation of External Resources in Capacity Remuneration Mechanisms, outlines the benefits of a regional approach to resource adequacy and identifies actions the European Commission must consider in order to make progress towards a fully integrated electricity market.

“Although Member States recognize that non-domestic generation contributes to meeting domestic demand in real time through regional markets, many seem reluctant to rely on non-domestic generation capacity when assessing resource adequacy at investment timescales,” said Phil Baker, senior advisor to RAP and author of the brief, identifying the crux of the challenge. “This leads to contracting for more capacity than is strictly necessary with higher costs imposed on customers.”

Supply reliability is currently defined by the 2005 Security of Supply Directive (2005/89/EC) as a national responsibility, and rules are not yet in place to give Member States the confidence to rely on neighbouring systems during periods of resource scarcity. As a result, some, including Great Britain, have or are unilaterally establishing capacity remuneration mechanisms (CRM) that take insufficient account of the contributions to be made by interconnection and non-domestic resources.

To remedy this situation, Baker recommends revisiting the Security of Supply Directive to mandate a regional approach to resource adequacy assessment. Baker also suggests that the Commission’s call for CRMs to be introduced only when a regional resource adequacy assessment indicates the need should become a condition for State Aid approval.

A new Security of Supply Directive will also need rules to ensure that transmission system operators respect the contractual commitments between a CRM and non-domestic generation. Current rules will curtail interconnection exports before initiating domestic demand reduction, which runs counter to a regional approach.

Baker also sees an important role for the European Network of Transmission System Operators (ENTSO‑e) and the Agency for the Cooperation of Energy Regulators (ACER) in developing a new methodology template for regional resource adequacy assessments, facilitating greater cooperation and data exchange among transmission system operators, and ensuring consistency in resource adequacy assessments across Europe.

“The Commission clearly recognises the importance of the issue, as the need for regional cooperation and open capacity markets across borders features prominently in its Energy Union Market Design Initiative currently out for public consultation,” added Baker. “A regional and ultimately pan-European approach to resource adequacy is crucial to optimizing investments in new resources and minimizing costs to end users.”

Contact: Sarah Keay-Bright