In recent years, several European countries have implemented Capacity Remuneration Mechanisms (CRM). The primary objective of such mechanisms is to support the electrical system adequacy, i.e., ensuring the constant supply of the national energy demand with sufficient reserve margins.

In Italy, a capacity market has been effective since 2022. The Italian remuneration scheme is based on a reliability option contract. This scheme provides a fixed annual remuneration per MW of committed capacity in exchange for the obligation for market players to give back to the system the margins obtained selling electricity, corresponding to the difference, when positive, between the market price and a price cap, i.e., the strike price. This has implications on the final net revenues for each type of power plant involved.

The aim of this study is to determine the impact of CRM on revenues coming from the energy (spot) market for different types of technologies, i.e., CCGT, OCGT, hydroelectric (reservoir, pumped-storage and run-of-river), wind and photovoltaic.

The analysis focuses on two different periods by considering historical data of 2022 and 2023 and a prospective 2030 long-term scenario.

The methodological approach involves calculating costs, considering both the investment and O&M costs and operational costs for fuel and emissions. Profits are then calculated by considering zonal spot energy prices and the capacity factor of power plants. Due to CRM, part of these revenues is constrained by the existence of a strike price but compensated with benefits related to the fixed annual remuneration.

For simulations in 2030, three cases are considered: the first assumes the absence of a capacity market, the second assumes the presence of a capacity market and the participation of all the plants of the considered technologies to the CRM; the third assumes the presence of a capacity market and the non-participation of some of the plants of the considered technologies to the CRM.

The results obtained in the different cases were then compared to determine whether and under what conditions participation in CRM is advantageous for the plants of the technology under consideration.

The results show that, from the producer’s point of view, participating in CRM is more advantageous than participating solely in the energy spot market, both for analyses based on historical data and for those based on the future scenario. An exception is represented by year 2022 when day-ahead electricity prices exceeded 700 €/MWh, while the strike price was approximately 400 €/MWh. Therefore, in this year, the net profits of a market player subject to CRM were significantly lower than those of a player that freely sold electricity in the energy spot market.

From a system perspective, the existence of CRM in 2022 led to lower final wholesale energy prices, with positive impacts on the end consumers.

The document is available on the site in Italian