Spain plans first capacity market auctions for summer 2025

Spain’s MITECO has opened consultation about the form of a capacity mechanism or capacity market which would guarantee security of electricity supply.

Capacity mechanisms pay energy generation and storage site owners for having capacity available for deployment in times of grid need, as well as paying for the electricity provided. Any such system would complement Spain’s active demand response service, which stimulates the demand side of the supply and demand equation to help keep the lights on.

While participants in a capacity mechanism would have to have their facilities available during hours of grid stress, the proposed legislation would also aim to drive investment in decarbonization. Hours of grid stress would not exceed 10% of the hours in a calendar year, under the proposed system.

Grid firm power capacity contracts, available to cover peak demand when needed, would be allocated via auctions with successful bidders being paid a fixed monthly fee for megawatts available and a price in euro, negotiated as part of the auction bid process, for each megawatt-hour of electricity provided per year. The exact formula for remuneration would be specified in the capacity mechanism order.

Spanish grid operator Red Eléctrica de España (REE) would run the capacity auctions, supervised by the National Commission for Markets and Competition.

Three types of auction have been proposed. One-year adjustment auctions would apply to operational plants to resolve “possible coverage problem;” five-year procurement exercises would address facilities in the development pipeline or which have attained prior operating authorization; and technology-specific, nine-year auctions would be held to help drive future investment on the back of secured revenue streams.

Each auction would include a firm power curve requirement specifying the capacity required, and when, based on forecasts and needs identified by REE based on needs such as reliability standards.

Projects which are the subject of auction bids would be permitted to emit a maximum of 550g of CO₂ per kilowatt-hour provided to the grid.

With the capacity mechanism consultation period to close on Jan. 29, 2025, the first auctions would be expected in 2025 and the capacity market would be expected to be operational in 2026.

From pv magazine España.