Case examples of capacity remuneration mechanisms in European electricity markets

Abstract

This study examines the Capacity Remuneration Mechanism (CRM) in the European electricity market, highlighting significant differences in CRM approaches across the UK, France, and Italy. The UK employs a capacity market with auctions, France utilizes strategic reserves for emergencies, and Italy provides capacity payments to generators. CRM offers stable income for capacity owners, with companies like SSE, EDF, and Enel deriving about one-third of their revenue from capacity compensation, enhancing risk resilience. However, for power users, while CRM reduces price volatility, it also raises electricity costs. Although CRM has improved grid reliability and stability, further optimization is needed to better integrate renewable energy, refine auction and compensation mechanisms, and minimize social and environmental impacts during the energy transition. Future advancements in smart grids and distributed energy technologies are expected to enable more flexible and intelligent CRM operations, supporting the transition to renewable energy.