Capacity mechanisms are financial support measures designed to make sure there are reliable options for a secure supply of electricity at all times. In short, capacity providers – that is electricity generators, storage operators, and also flexible consumers – are paid to keep a buffer available (in the form of capacity) to help mitigate risks to the electricity system, particularly at times when demand is highest (peak demand) or, for example, during dark doldrums (so-called Dunkelflaute events, when there is both little wind and sunshine for an extended period).

Capacity mechanisms work by helping to balance demand and supply, which is essential for electricity systems to work. Power plants, flexible consumers, and storage assets that are part of a capacity mechanism do not use their full potential at all times, potentially relinquishing revenues. Instead, they set aside reliable capacity to be activated at times of stress, and get paid for this service.

“Capacity mechanisms are increasingly likely to become a long-term feature of many European electricity markets,” concluded a report assessing the role of capacity mechanisms in the energy transition by European Transmission System Operator (TSO) association ENTSO-E. “Ensuring security of supply during periods of limited renewable output, while keeping electricity affordable – especially as electrification expands across sectors – is a fundamental public service.”

What is the purpose of capacity mechanisms?

The role of capacity mechanisms is to ensure the secure supply of electricity by providing sufficient revenue certainty and a viable business case for resources critical to system security.

Six European countries – Portugal, Spain, France, Ireland, Denmark, and Sweden – already face concerns about the reliability of their electricity systems, according to a 2024 assessment on the security of electricity supply in the EU by ENTSO-E.

While the report did not cover the whole of the EU as many member states lacked relevant data, ENTSO-E found that another five countries – Finland, Estonia, Belgium, the Netherlands, and Italy – could face gaps in the medium (2026-2029) or long term (2030-2033). Their systems might therefore be unable to deliver enough electricity to meet demand at all times in the near future.

“To avoid customer curtailments, you have to support investments in a way,” said Emma Menegatti, a researcher at the Florence School of Regulation (FSR) who studies the future of capacity mechanisms in Europe.