The European Commission has approved, under EU state aid rules, a €9 billion capacity mechanism for electricity supply in Spain. This aid measure aims to ensure sufficient capacity to flexibly produce, store, or consume electricity and that electricity production meets projected demand.
Spain notified the Commission of the introduction of a capacity mechanism to guarantee the security of electricity supply. The measure will be in place for ten years, starting in May 2026.
Under this market-wide mechanism, the transmission system operator (TSO) will remunerate all the capacity necessary to meet the reliability standard , that is, the maximum acceptable number of lost load hours per year that the network must meet to ensure adequate security of supply. Lost load is the amount of electricity demand that cannot be met due to supply interruptions. The reliability standard was established based on Spain's national assessment of resource adequacy and was approved by the Agency for Cooperation of Energy Regulators (ACER).
The capacity mechanism will be open to all projects, existing or new, that offer availability during periods of scarcity. These projects encompass electricity generation, demand response (reducing consumption in response to supply reductions), and storage (subject to environmental eligibility criteria). Beneficiaries will be selected through transparent and non-discriminatory bidding procedures. The measure's budget is estimated at around €900 million per year, totaling approximately €9 billion over the ten-year period, depending on the results of each capacity auction.
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The measure will be open to projects located in Spain. Spain will endeavor to enable the participation of all other interconnected Member States as soon as possible. The capacity mechanism will support the development of flexibility services (storage and demand response providers) where necessary, in order to achieve Spain's national flexibility target in accordance with EU law and the ACER methodology. The capacity mechanism includes features to ensure sufficient net electricity generation to meet the reliability standard.
"Now more than ever, we need a secure electricity supply across Europe. Capacity mechanisms can help safeguard this security, provided they are designed to avoid distortions of competition in energy markets. This new capacity mechanism will help ensure that Spain has sufficient electricity in situations of shortage. Capacity providers will be selected through a tendering procedure, guaranteeing effective competition"; Valdis Dombrovskis, Commissioner for Economy and Productivity and Implementation and Simplification.
Commission Evaluation
The Commission has assessed the Spanish measure in accordance with EU State aid rules, and in particular Article 107(3)(c) of the Treaty on the Functioning of the European Union (‘TFEU’), which allows Member States to support the development of certain economic activities under certain conditions, and the 2022 Guidelines on State aid for climate, environmental protection and energy . The Commission has noted the following:
- The measure is necessary and appropriate to achieve the objective pursued, in accordance with the EU Electricity Regulation .
- The measure is proportionate , as its amount corresponds to actual financing needs. Furthermore, the aid will be granted to projects selected through a transparent and non-discriminatory tendering procedure, with safeguards to ensure effective competition. Beneficiaries will compete based on the amount of aid requested per MW of available capacity during a shortage. Consequently, the measure will have limited effects on competition and trade between Member States.
- The measure aligns with most of the best practices for capacity mechanisms set out in the Clean Industry Pact State aid framework .
For these reasons, the Commission has approved the Spanish aid in accordance with the relevant EU rules.