Spain takes a key step in the regulation of its electricity system with the publication of the long-awaited Capacity Market design, a mechanism that has generated mixed opinions in the sector.

Currently under public consultation until January 29, 2025, the aim is to ensure supply security in a system marked by high renewable penetration and growing needs for firmness and flexibility.

The Ministry for Ecological Transition and the Demographic Challenge has proposed a scheme based on differentiated auctions for the allocation of firm capacity. According to the proposal, these auctions will allow generation, storage, and demand technologies to contribute to the system under strict technical and emission requirements:

• Main Auction: Long-term contracts for assets that will begin operating in 2029, with awards scheduled for 2025.
• Transitional Auctions (2025-2028): Designed to cover short-term risks while long-term allocations are being implemented.
• Adjustment Auctions: Annual and aimed at correcting possible mismatches in allocated assets.

The design also includes the creation of a secondary market for the transfer and assignment of rights and obligations, increasing operational flexibility.

Furthermore, emission limits (550 g CO2/kWh) and rapid response capabilities are required, promoting the participation of aggregated units under 1 MW. This opening aims to democratize access to the market, particularly for small consumers.

The Ministry’s proposal has received both praise and criticism from various stakeholders in the electricity sector. While some highlight its alignment with European models, others question its ability to ensure fairness and foster technological innovation.

The Spanish Association of Electric Power Companies (aelēc) celebrated the proposal as a significant step forward for Spain. “It is an important step to ensure the necessary firmness and align ourselves with our European counterparts,” states the association’s press release. According to aelēc, the proposal places Spain on par with countries like France, Italy, and Germany, which already have similar mechanisms.

On the other hand, Alicia Carrasco, Executive Director of ENTRA Aggregation and Flexibility, highlights positive aspects such as the inclusion of demand management and aggregation of small units but warns about the importance of ensuring equitable access.

In an interview with Energía Estratégica España, Carrasco points out, “Opening to units under 1 MW is a crucial step, but the design must ensure that these options are not at a disadvantage compared to larger players.”

Meanwhile,Miguel Marroquín, Managing Director de Our New Energy, takes a more critical stance.

According to him, the proposed model mainly benefits traditional technologies like combined cycles and cogeneration, rather than encouraging investments in batteries and other flexibility solutions.

“This design creates an unequal system, where more sustainable and flexible technologies are not sufficiently incentivized,” says the battery promoter.

The Spanish model shares similarities with Italy’s capacity mechanisms, where a large percentage of battery flexibility is auctioned.

However, Marroquín believes the Spanish proposal lacks clarity regarding participation rules and values associated with flexibility: “In Italy, you know exactly what you’re offering in the auction; here, that definition is still vague, which can create uncertainty for participants.”

The challenges of the Spanish design lie in its ability to balance the needs of the electricity system with fairness and technological innovation, according to industry experts.

Market Distortions: Marroquín argues that the current scheme could penalize small investors by prioritizing large asset portfolios. Promotion of Flexibility: While the importance of firmness is recognized, some stakeholders believe the design does not sufficiently promote flexibility, a key feature in electricity systems with high renewable penetration. Price Impact: The creation of a secondary market could increase liquidity but also generate uncertainties about the valuation of allocated rights.

On the other hand, the positive aspects include:

• Greater Supply Security: Auction segmentation allows addressing both short- and long-term needs, reducing system stress risks.
• European Alignment: The proposal positions Spain in line with leading countries in energy transition, such as Germany and the UK.

The Ministry has opened the public consultation until January 29, 2025, inviting all sector stakeholders to provide their feedback. This is a key opportunity to refine the design and ensure its long-term success.

Once the process concludes, it will be submitted to the European Commission for approval, and national processing will move forward. According to the Ministry, the goal is to have an operational scheme by the end of 2025.