Target model for capacity mechanisms according to CISAF
On June 25, 2025, the European Commission published new requirements for capacity mechanisms. Member states must take these requirements into account when designing their national capacity markets.
The requirements are part of the framework for state aid to support the Clean Industrial Deal (CISAF). The communication sets out conditions under which Member States can support investments in decarbonized technologies and energy efficiency. The new framework includes the promotion of renewable energies and low-carbon fuels. Member states will also be given the option of granting energy-intensive consumers price relief for electricity costs. The aid framework will apply until December 31, 2030.
In addition, CISAF sets new requirements for flexibility measures and capacity mechanisms. These are intended to enable Member States to reliably integrate volatile renewable generation capacities into the existing energy supply. The communication sets out capacity mechanisms based on so-called target models, under which electricity suppliers are remunerated for maintaining standby capacity. Capacity mechanisms designed differently may be approved under the existing guidelines on state aid for climate, environmental protection, and energy (CEEAG).
CISAF gives Member States two options: either a strategic reserve operating outside of the market or a market-wide central buyer mechanism. Both types of measures will be approved for a maximum period of 10 years.
Fulfillment of certain requirements necessary
Capacity mechanisms must meet the following requirements in particular:
- The capacity mechanism must be open to all technologies and projects. Member States may only impose transparent, objective and non-discriminatory technical and environmental requirements.
- The capacity demanded by the mechanism must be calculated considering the resources available at the European level.
- A competitive tender is required, in which the capacities are awarded solely based on the (clearing) price. To participate, the minimum capacity required must not exceed 1 MW and the minimum delivery duration required must not exceed 1 hour. Aggregation must be possible.
- The allocated capacities must be regularly checked for availability and tested. Contractual penalties for non-availability must be provided for.
- Aid for the same capacity resource from more than one aid measure may be cumulated, provided that overcompensation is avoided.
- At least 90% of the costs incurred under the capacity mechanism must be allocated to consumers based on their consumption during high-price periods. Charges may be levied on balance responsible parties (such as suppliers).
The German coalition of CDU/CSU and SPD have agreed to introduce a capacity mechanism in their coalition agreement. Details have not yet been announced. It remains to be seen how the federal government will implement a capacity mechanism that meets the CISAF criteria. Among other things, it is unclear how the planned expansion of 20 GW of gas-fired power plant capacity by 2030 can be integrated.
The Federal Ministry for Economic Affairs under Minister Habeck had already published a concept for a combined capacity market last year.
