The capacity mechanism in France


The goal in implementing a capacity mechanism in France is to guarantee security of supply over the medium term by covering risks during peak periods in winter. It was approved with conditions by the European Commission on 8 November 2016, and the market rules drafted for it were approved by the French Ministry of Energy and Energy Regulatory Commission on 29 November 2016.

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How the capacity mechanism works

The capacity mechanism rests on two pillars. First, it creates a requirement for obligated parties – mostly electricity suppliers – to obtain capacity certificates to contribute to the security of supply of their customers. Holding suppliers responsible in this way is notably a means of containing peak demand growth by creating an economic incentive to limit their customers’ consumption.
Second, RTE certifies the capacity of operators that agree to make their capacity available when demand peaks in winter. The capacity mechanism allows them to realise value on the availability of generation and demand response capacity by selling capacity certificates.

Actors trade capacity certificates through organised market sessions or OTC transactions. During the delivery year, RTE notifies them of the peak days when they must uphold their individual commitments (“PP1” days for suppliers, “PP2” days for generators and other capacity operators). The calendar of these days can be found here.
After the delivery year, RTE informs suppliers of their final obligation level and calculates the actual availability of their capacity. Differences result in financial payments.

Forward indicators for the capacity obligation


Forward indicators for the capacity obligation are based on the reference trajectory and alternative consumption trajectories in the sensitivity analyses presented in the 2019 Generation Adequacy Report.

 

Trajectory Forecast total capacity obligation for France in 2020 (GW) Forecast total capacity obligation for France in 2021 (GW)
Trajectory 3 93,7 93,2
Trajectory 4 94,0 93,9
Base case: flat consumption 94,3 94,3
Trajectory 5 94,5 94,6

Suppliers can take measures to reduce their customers’ consumption. Such measures to limit consumption at peak times must be subtracted from the forecast capacity obligation published by RTE. Total demand response measures are published in the Registry of Consumption Control Measures. In 2019, they amounted to 632 MW.

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Breakdown of certified capacity


Note : The figures for 2018 are different from those in the chart in the 2017 Annual Electricity Report because actors can re-declare their available certified capacity throughout the delivery year.

Certified entities and their technology are defined at the site level. They may be generation or demand response capacities. Certified volumes total 90.5 GW for 2019 and 86.6 GW for 2020.

This does not include capacity certified by RTE at interconnections: 6,319 MW for 2019 and 6,760 MW for 2020.

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Explicit participation of cross-border capacities

From the beginning, the French capacity mechanism was designed to take into account the interconnection between the country’s power system and those of other European countries, and the contribution the latter can make to security of supply in France. Initially, for delivery years 2017 and 2018, this contribution was accounted for implicitly, by deducting it from the capacity requirements of suppliers via the so-called security factor, but it was not explicitly valued. The security factor was 0.93 in 2017 and 2018.

Since 2019, contributions from EU Member States directly interconnected with France have been accounted for explicitly. A country’s contribution is based on the electricity France can expect to import from it when a shortfall is identified in the Generation Adequacy Report scenarios.

For delivery year 2019, the contribution of the five countries explicitly taken into account was 6,319 MW, and the security factor was 0.99.

Evolution of the capacity mechanism


Capacity certificates can be exchanged over-the-counter or through auctions.

Details of these transactions are published in the capacity certificates register.
When auctions are involved, in the interest of transparency, exchange volumes and prices (€/certificate) are published on the EPEX SPOT website.

The imbalance settlement price (formerly the reference market price) is then calculated using a methodology defined by the CRE.

 

Delivery year Reference market price, or  imbalance settlement price
2017 €9,999.8/MW
2018 €9,342.7/MW
2019 €17,365.3/MW
2020 €16,583.9/MW

 

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Long-term tenders


A long-term tender (appel d’offres long terme – AOLT) is a tender for new capacity compatible with the Multiannual Energy Programme (meaning capacity relying on fossil fuels are not eligible). Tenders are organised four years prior to each delivery year by the Ministry of Energy if a benefit for society is identified. The goal is to offer visibility on stable revenue from capacity, and thus encourage new investments that will boost security of supply.
A guaranteed price is set at the conclusion of each tender. Candidates whose offers are below the guaranteed price are selected and awarded contracts for difference, ensuring they receive steady remuneration equal to the guaranteed price for a period of seven years. If the guaranteed price is above the market price over the course of the period covered by a contract, the selected party will obtain the difference. If it is below the market price, the party will pay the difference into a dedicated fund.
Once the scheme is fully established, each tender will be organised four years ahead of the delivery period and remain open for a period of six months.
The first tenders were conducted in 2019. Transitional measures were put into place for their organisation, to secure capacity for periods starting over the next four years. As such, four tenders were organised late in 2019, for the following periods:

  • 2020-2026
  • 2021-2027
  • 2022-2028
  • 2023-2029

Results were not yet available for these tenders as this report was being prepared. Winners are expected to be notified by the Ministry of Energy in the near future.

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