Spain Introduces Capacity Market
Spanish Ministry of Ecological Transition Launches Public Consultation on Capacity Market Regulation. The Spanish Ministry of Ecological Transition has announced the commencement of public consultations on a draft regulation for establishing a capacity market for the country’s mainland power system. The new mechanism, open for public comments until January 29, 2025, aims to ensure energy supply security while stimulating investments in storage technologies and flexible solutions such as demand-side management.
How Will the Capacity Market Work?
The proposed Spanish capacity market will operate through auctions in which both existing and new generation, storage assets, and demand-side flexibility solutions (e.g., consumers and aggregators) can participate. The mechanism will compensate participants for ensuring grid stability by being ready to supply energy to the grid or reduce consumption upon request by the power system operator, Red Eléctrica de España (REE).
Key elements of the mechanism include capacity and prices determined during the auctions, measured in megawatts (MW) and euros per MW per year. Market participants will need to meet stringent requirements for flexibility, reliability, and emissions limits – generation cannot exceed 550 grams of CO₂ per kWh. Notably, new investments will be allowed exclusively in renewable energy, storage, or demand-side management projects.
Types of Auctions in the Capacity Market
The regulatory proposal outlines three types of auctions tailored to different market needs:
Main Auction:
Open to both existing facilities and new renewable, storage, or demand-side projects.
To be held annually, contingent on identified capacity needs.
Service durations vary by technology and facility status:
Up to one year for existing facilities.
Up to 15 years for new renewable energy or storage projects.
From one to 10 years for new demand-side management projects.
Annual Adjustment Auction:
Reserved for operational facilities capable of providing service within 12 months of contract award.
Aims to address short-term capacity shortages with smaller volumes than the main auctions.
Transitional Auction:
Organized until the services from main auction contracts are activated.
Offers one-year contracts for both existing facilities and new investments.
Enhancing Market Liquidity and Oversight
To improve market liquidity, a secondary market for rights and obligations arising from auctions is planned. This will allow the transfer of installation ownership or the reassignment of rights to other entities.
REE and the Spanish National Commission on Markets and Competition (CNMC) will oversee and verify the delivery of grid stability services. The mechanism’s funding will come from electricity sales charges and direct contributions from market consumers. Fee levels will vary based on tariff segments and peak demand hours, incentivizing reduced consumption during the most burdened periods.
Significance for the Energy Transition
The proposed capacity market represents a step toward enhancing the stability of Spain’s power grid, particularly given the increasing share of renewable energy. This mechanism aims to provide appropriate investment signals for flexibility technologies, such as energy storage and demand-side management, which are critical for a smooth energy transition.
By introducing stringent standards for emissions and flexibility, the new capacity market promotes green technology investments while phasing out financial support for traditional energy sources. As a result, Spain is advancing toward the decarbonization of its power sector in alignment with European Union objectives.
Source: miteco.gob.es