Capacity markets as a tool for promoting flexibility and ensuring security in the electricity system

2026
Stephanía Mosquera López, Jorge Fernández Gómez
https://doi.org/10.18543/MIFE9966
Basque Institute of Competitiveness - Deusto Foundation

Download Executive Summary

Download Report (in Spanish) 

Abstract

The advance of electrification and the growing penetration of variable renewable generation and other distributed energy resources, together with the increasing impacts of climate change, are significantly increasing flexibility needs in electricity systems. Ensuring a continuous balance between supply and demand, while maintaining security of supply, requires a more agile response to operational variations and greater resilience in response to contingencies. This study analyses the concept of electricity system flexibility, classifies the main resources that can provide it, examines the growing flexibility requirements across different time horizons, and reviews the role of capacity mechanisms in Europe as instruments to secure adequate firm capacity. It also evaluates the proposal of a capacity market presented in Spain in December 2024.

In Europe and Spain, recent analyses highlight risks regarding demand coverage, growing flexibility requirements, and the importance of capacity remuneration mechanisms that ensure the economic viability of firm resources. The proposed design for the capacity market in Spain represents a step in this direction, although it requires adjustments to avoid distortions and inefficiencies in its operation. Accelerating its implementation and coordinating it with other existing measures will be key to ensuring a secure, flexible electricity system that is prepared for the challenges of the energy transition.