When will the first capacity market auction be held in Spain? That is the main question the sector has been asking since the European Commission approved the mechanism for a total value of 9 billion euros .
According to Roger Pasola Dolader, Head of Public Affairs and Regulation at SSE for Spain, the most likely scenario places the first call for proposals at the beginning of 2027, although there are still regulatory definitions that could affect the deadlines and, above all, the opportunities for new investments in storage.
“ The first capacity market auction will be in 2027, it could be in January or it could be delayed until the end of March ,” Pasola stated in an interview with Energía Estratégica, depending on the time still required for the approval of the pending regulations.
The scheme includes a transitional auction , a main auction , and subsequent adjustment auctions , intended to correct mismatches between the anticipated needs and the capacity finally available in the system.
However, Brussels' approval does not mean that tenders can be launched immediately, so the interviewee explained that the market still needs two regulatory milestones before reaching the first call for tenders.
The first step is the approval of the Ministerial Order that will establish the general framework for the mechanism, while the second will be a specific Resolution for the call for bids, which will regulate the auctions and define the parameters that are currently the focus of attention for developers and investors. It is precisely in this latter resolution that the sector hopes to find answers to the main questions that remain unanswered.
“ The resolution process has to start practically from scratch ,” the executive warned. While the proposed Ministerial Order, which we have been reviewing during the public consultation and hearing periods, already establishes in its Article 12 the minimum mandatory content that each call for tenders must include: price caps, firmness coefficients, technology quotas, and service provision periods.
The specialist even pointed out that Article 10 of the proposal also states that these Resolutions - one per auction - will define the firmness ratios of each technology as proposed by Red Eléctrica, and Articles 11 and 15.
“It’s worth remembering that Article 15 of the Order establishes a pay-as-bid sealed-bid auction mechanism, in which each awarded facility receives its own bid price, not the clearing price. This means that the lowest bidders don’t benefit from the higher bids, thus incentivizing the disclosure of the true cost,” the executive stated. He also believes it is likely that the document will be subject to public consultation, a process that could extend the deadlines by at least six months.
What signals are investors waiting for?
Beyond the date of the first auction, the market is waiting to learn the rules. Among the main unknowns are the volume to be contracted in each round, the price limits that could be applied to bids, and the firmness coefficients that each technology will receive.
“ It is not yet known how much volume they will offer ,” Pasola acknowledged. This information is crucial for developers and financiers to understand the true scale of the opportunity and assess the expected level of competition in each bidding process. Some observations from the latest Regulatory Impact Analysis Report submitted to the Council of State for review provided clues about the potential impact : between 40 and 45 GW remunerated at €20,000/MW firm, with an impact of between 5 and 8 cents/kWh collected in the electricity bill in exchange for a reduction in electricity prices (markets) resulting from this mechanism.
Another variable the market is closely monitoring is the potential existence of a price cap for bids. According to the executive, this parameter is already being considered for existing facilities, although it is being kept confidential. If a price cap is ultimately implemented for new facilities as well, it will allow for an anticipation of the final contracted capacity and will serve as a benchmark for evaluating the potential profitability of projects competing in the auctions.
Added to this is an even more relevant definition for many technologies: the firmness coefficients. “ The firmness coefficient is one of the things that the resolution will be able to establish ,” Pasola states. This criterion will determine how much firm capacity each asset can demonstrate and, therefore, its real chances of competing within the mechanism.
The industry's expectations are particularly focused on batteries, which are set to play an increasingly important role in an electricity system with growing renewable energy penetration. A favorable assessment of their capacity to provide flexibility and backup could make them one of the main beneficiaries of future auctions.
Article 10 of the Ministerial Order establishes that firmness coefficients (equivalent to the derating factors used in other European markets) will be set in the call for bids for each auction, at the proposal of the system operator, Red Eléctrica, based on the technical characteristics of each reference technology. Therefore, this is not a permanent value: it can be updated in each call for bids, which introduces an element of uncertainty but also allows for adaptation to the realities of the system. For batteries, the coefficient that is ultimately set will be the main determinant of their competitiveness compared to combined cycle plants in the auction.
In addition, there is another strategic definition: the allocation between existing facilities and new investments. As Pasola explained, the resolution must clarify what percentage of the volume will be reserved for already operational assets and how much will be allocated to new projects.
“It is one of the energy policy decisions to be made now that we have full decision-making powers; existing facilities allow us to contract firm capacity for less time and at a lower price, but, on the other hand, firmness needs to be ensured for 10 years ahead, and even more so if we start to believe the increase in demand with the curves that require new energy-intensive industries, the proliferation of Data Centers, and the increasingly rapid adoption of Electric Vehicles,” analyzed the Director of Regulation and Institutional Affairs of SSE in Spain.
The answer to this question will be closely watched by storage developers. If the regulator allocates a significant portion of capacity to new assets, batteries could receive an additional revenue signal that would spur further investment. Conversely, a predominance of existing facilities could favor technologies already in the system, particularly combined cycle and hydroelectric plants.
In that sense, Pasola warns of a scenario that could occur if the design does not establish specific limits or reserves, in which companies with a significant portfolio of combined cycle plants, such as the incumbents (for example, Iberdrola, Endesa, Naturgy or EDP) , could capture a significant part of the auctioned volume thanks to the firmness that these assets provide.
“The initial design had a purpose of reducing costs by eliminating part of the opportunity cost of marginal technologies, but the initial design also began to shift in 2019 when cycles were not capturing the same price as today, spreads for storage were minimal and battery CAPEX were still high,” Pasola pointed out.
On the other hand, the DG COMP press release contains relevant signals that go beyond the date. The speed of processing suggests that the Commission has applied the new procedures of the Clean Industrial Deal State Aid Framework (CISAF), which establishes an accelerated pathway for well-designed capacity mechanisms aligned with decarbonization.
Furthermore, the statement mentions the incorporation of design principles derived from the experience of other member states and the new internal market framework, which, while strengthening the legal soundness of the scheme, may mean that relevant design principles have been added.
"We will wait for the non-confidential publication of the file to validate whether they will publish the same market design as a few months ago, or if we have to prepare for relevant new developments," the executive stated.
There is, however, one element that deserves attention: cross-border participation. The Order stipulates in its first additional provision that assets from other countries may participate, but the approval suggests that neither the operating procedures, nor the coordination between system and market operators of neighboring countries, nor the necessary technical agreements will be in place for the first auction.
In practice, this means that the initial calls for tenders will be primarily a market for assets located in Spain, maximizing opportunities for domestic developers . This is no small detail: the mechanism's charges are paid by Spanish consumers, and it makes perfect sense that assets in the Iberian Peninsula should capture the value in the initial phase.
Following Brussels' approval, the discussion shifted from focusing solely on the timetable. For the sector, the real game begins now: the debate over the rules that will determine who will capture the value of the capacity market and what role batteries will play in the next stage of Spain's energy transition.