Assessment of the Impact of the French Capacity Mechanism on Electricity Markets

The internal energy market does not allow meeting all energy policy objectives by itself. Concerns over security of supply have emerged in the past ten years in France as well as in a number of European member states. In order to provide better incentives to keep the power system in balance and to complement energy efficiency policies, the French government decided in 2010 to establish a capacity mechanism (CM) with a design aimed at addressing the French power system specificities. This report presents the key results of a study which aims to:

• Assess the French capacity mechanism and its impact on the electricity market, based on a dynamic modelling of European electricity markets from 2017 to 2040; and
• Compare the impacts of the French capacity mechanism with the ones of other public policy interventions, which puts the impacts of the French capacity mechanism on the internal energy market into perspective.

The results provide insights on the possible outcomes of this market reform. Based on our modelling and scenarios, it shows that the capacity mechanism in France allows to meet the reliability standard set by policy makers and likely improves significantly social welfare, while its impact on the energy market is overall comparable to other public policy interventions.