European Electricity Market Reforms: The “Visible Hand” of Public Coordination

The paper investigates how proposed reforms on policies to maintain generation adequacy and to encourage clean technology investments in a number of European countries, modify the role of the market. This is reduced as the government, regulator and system operator take on explicit responsibility through the introduction of capacity mechanisms and long-term support for clean technologies. We highlight the interaction of these mechanisms with the electricity market and we look at how they reallocate risks between generators, government and consumers. The different mechanisms offer varying degrees of autonomy to generators with regards investment decisions. Looking towards the future, the paper also explores how designs of mechanisms might move towards a technology-neutral mechanism in the long-run. This could involve the auctioning of long-term contracts for all types of existing and new capacities, whether it be low carbon or fossil fuelled.
Keywords: Capacity mechanism, Renewables policies, Long-term contracts, Electricity markets