Capacity Mechanism

A capacity mechanism is a measure designed to ensure the adequacy and reliability of the power system, to encourage investment in the emergence of new capacities, and further operation or development of existing capacities. Such mechanism allows creating a transparent, technologically neutral and competition-based system through which the state promotes the capacities necessary to ensure a reliable electricity supply in the country.

 

The development and implementation of the capacity mechanism is particularly important in implementing the objectives of the Lithuanian National Energy Independence Strategy related to the development of power generation from renewable energy sources, increasing local power generation within the country and reduction of electricity imports and smooth synchronisation of the Lithuanian power system with the continental European power system.

Secure power supply is one of the key objectives of the European Union’s energy policy. One of its elements is the adequacy of the power system, which shows whether the capacities and the interconnection of the grids are sufficient to meet the agreed level of needs of the country’s electricity consumers. The assessment of the power system resource adequacy is based on evaluation such factors as the availability of power generating sources and interconnections as well as the load of power grids.

On 19 September 2018, researchers from the Kaunas University of Technology (KTU) Department of Electrical Power Systems presented the first probabilistic adequacy assessment of the Lithuanian power system until 2030 (for the periods 2019–2025 and 2025–2030). The study showed that from 2025 onwards, the lack of reliably available local generation to ensure the adequacy of the Lithuanian power system will become especially relevant, and one of the key challenges will be to meet the growing demand of the country’s electricity consumers in the face of declining capacity of reliably available electricity generating power plants, thus development of reliable local capacities is necessary to ensure the adequacy and reliability of the power system. In addition, smooth operation of the Baltic power system and reliable power supply will have to be ensured following the launch of synchronous operation with the electricity network of continental Europe in 2025. A summary of the probabilistic adequacy assessment of the Lithuanian power system until 2030 can be found at this link. Study presentation slides can be found by clicking this link.

In November 2018, taking into account the assessment of the adequacy of the Lithuanian power system until 2030, the Ministry of Energy approached existing and potential market participants with regard to the development of new generation capacities. Market participants were requested to provide information on their plans to develop reliably available generation capacities of over 10 MW, to be launched by 2024. The letter of the Ministry of Energy can be found here: in Lithuanian, in English.

In April 19, the updated study ‘Probabilistic Assessment of the Adequacy of the Lithuanian Power System for 2019–2030’ prepared by the KTU researchers and the probabilistic assessment of the reliable operation of the Lithuanian power system until 2030 identified a lack of a reliably available local generation to ensure the adequacy of the Lithuanian power system from 2025, achieving the Loss of Load Expectation (LOLE) value of 8 h/year.

In addition, the Mid-term Adequacy Forecast (pan-European monitoring assessment of power system resource adequacy) of the European Network of Transmission System Operators for Electricity (ENTSO-E) predicts that in 2025, there is a 5% probability that the LOLE in Lithuania may increase to 29.5 h/year.

In July 2020, the KTU researchers by the order of Lithuanian transmission system operator LITGRID AB have prepared the updated study ‘Probabilistic Assessment of the Adequacy of the Lithuanian Power System for 2019–2030’ (you can get acquainted with the updated study and related information here). By this study the Assessment of the Adequacy of the Lithuanian Power System that has been performed in 2019 was renewed. The updated Assessment identifies a lack of a reliably available local generation to ensure the adequacy of the Lithuanian power system from 2025.

The results of the probabilistic analysis of the adequacy of the Lithuanian power system and the assessment of the adequacy forecast performed by ENTSO-E allowed identifying the challenges that will emerge following the de-synchronization of the Lithuanian power system from the IPS/UPS system in 2025. In order to ensure the reliable operation of the Lithuanian power system and a sufficient level of security of power supply following 2025, it was decided to implement a capacity mechanism.

Press releases:

2017 06 01

Ž. Vaičiūnas: Baltijos regione nuo 2025 m. reikės naujų patikimų elektrinių

2018 11 12

Vertinamos rinkos galimybės plėtoti vietinę lanksčią elektros energijos gamybą

2018 09 19

KTU mokslininkų studija: Lietuvai būtina patikimai prieinamų efektyvių vietinių pajėgumų plėtra

 

A capacity mechanism is a measure designed to ensure the adequacy and reliability of the power system, to encourage investment in the emergence of new capacities, and further operation or development of existing capacities. Such mechanism allows creating a transparent, technologically neutral and competition-based system through which the state promotes the capacities necessary to ensure a reliable electricity supply in the country.

The development and implementation of the capacity mechanism model is particularly important in implementing the objectives of the Lithuanian National Energy Independence Strategy related to the development of power generation from renewable energy sources, smooth synchronisation of the Lithuanian power system with the continental European system and the reduction of dependence on electricity imports as well as increasing local power generation within the country, promoting balanced investment in the development of competitive capacities and the development of a reliable and competitive power system capacity market.

Market participants were consulted on the implementation of the capacity mechanism project in order to decide on the most appropriate way to promote the development of capacities. The selected capacity mechanism model will be enshrined in national legislation and agreed with the European Commission.

A consulting company FTI France SAS (Compass Lexecon) was hired to create the concept for the capacity mechanism. The company was involved in the implementation of capacity mechanisms in the United Kingdom, France, Belgium, Italy, Spain, Greece, Slovenia, Austria and Poland. The international consulting company FTI France SAS developed guidelines for the concept of the capacity mechanism. The capacity mechanism concept presented in February 2019 can be found here.

The capacity mechanism will be implemented in Lithuania by organising technology-neutral capacity auctions, meaning that the auctions will be open not only to electricity generating units but also storage (such as batteries) facilities and independent electricity demand response aggregators, and the participants will be able to use not only existing but also future generation facilities to be installed by the launch of the capacity delivery period. Electricity consumers managing demand response facilities will be able to participate in capacity auctions and become capacity suppliers (i.e. they will be able to take advantage of the capacity mechanism themselves). The new facilities are expected to replace technologically obsolete, inefficient and non-compliant facilities. It would also contribute to climate change mitigation goals.

The capacity mechanism will also be open to other EU Member States, whose power system is connected to the Lithuanian power system via interconnector (or interconnectors), natural persons or legal entities, other organisations or their subdivisions operating existing capacity facilities in that Member State. This will ensure greater competition and attract a larger number of participants.

Press releases:

2018 11 22

Vietinės elektros energijos gamybai plėtoti kuriama galių mechanizmo koncepcija

On 5 February 2019, the Ministry of Energy held a public discussion, introducing the concepts of the capacity mechanism and system services. This was the first stage of public consultation with stakeholders, during which the comments and suggestions received were evaluated to form the final proposals for the development of a capacity mechanism in Lithuania and the concepts of ancillary services.

The implementation of the capacity mechanism is particularly important in implementing the objectives of the Lithuanian National Energy Independence Strategy, which relate to the development of electricity generation from renewable energy sources, increasing local power generation in the country, and smooth synchronisation of the Lithuanian power system with the continental European system.

The developed concept (can be found here) is intended to help Lithuania select the most appropriate model of the capacity mechanism and to define its stages and envisage the responsibilities of all participating stakeholders in preparing the relevant legislative changes.

Following a public discussion, the Ministry of Energy issued a call for proposals and comments on specific public consultation matters with regard to the capacity mechanism model being formed in Lithuania, to be submitted by 19 February 2019.

After evaluating all the relevant criteria and the proposals received during the public consultation, it was decided that a market-wide capacity mechanism model best suits Lithuania’s needs. The selected model would allow maintaining both competitive existing capacities and attracting investment in new capacities. In addition, the market-wide model is technologically neutral, does not discriminate among different types of capacities, such as generation, independent electricity demand response aggregation and storage, and creates competition among them.

On 8 October 2019, the Ministry of Energy held a public discussion, during which it presented to the stakeholders the capacity mechanism model being developed as well as the amendments to the Law on Electricity announced on 24 September 2019, which provide for the implementation of the capacity mechanism in Lithuania. During the meeting the participants took interest in the conceptual and practical matters related to the development and implementation of the capacity mechanism, participation in capacity auctions. The presentation given during the discussion can be found here.

Pursuant to Article 21 (2) of Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity, which requires Member States, before introducing capacity mechanisms, to conduct a comprehensive study of the possible effects of such mechanisms on the neighbouring Member States by consulting at least its neighbouring Member States to which they have a direct network connection and the stakeholders of those Member States, on 12 May 2020 the Ministry of Energy held a consultation with neighbouring Member States regarding impact assessment of capacity mechanism to be introduced in Lithuania. Representatives of ministries, regulatory authorities and transmission system operators from Estonia, Poland, Latvia and Sweden were invited and took part in this consultation.

According to the concept of the capacity mechanism, planned to be introduced in Lithuania, Lithuania has initiated conduction of impact assessment on possible effects of capacity mechanism which was performed by international consulting company FTI France S.A.S. (Compass Lexecon). Task of this impact assessment was to evaluate possible impact of capacity mechanism on Lithuanian energy market and neighbouring countries.

During the consultation organised by the Ministry of Energy, results of impact assessment were presented. Impact assessment revealed that capacity mechanism planned to be introduced in Lithuania will have no major impact on electricity markets of neighbouring Member States.

The report of the consultations and the written questions received from the parties are available here.

Press releases:

2019 02 01

Energetikos ministerija pristatys ilgalaikio galių mechanizmo ir sisteminių paslaugų Lietuvoje koncepcijas

2019 02 08

http://enmin.lrv.lt/lt/skelbimai-1/energetikos-ministerija-kviecia-teikti-pasiulymus-del-ilgalaikio-galiu-mechanizmo-koncepcijos

2019 10 04

Ministerija kviečia aptarti kuriamą pajėgumo mechanizmo modelį

2019 10 10 2020 05 15

Rinkos dalyviai aktyviai domisi elektros energetikos sistemos adekvatumui užtikrinti kuriama pajėgumų sistema

2020 05 15

Lietuvoje kuriamas pajėgumų mechanizmas pristatytas regiono partneriams

Capacity mechanisms in the Member States can only be introduced after the European Commission has provided its opinion on the electricity market development plan as part of the state aid process. The coordination of the Lithuanian Electricity Market Development and Implementation Plan with the European Commission is one of the necessary parts of the development of the capacity mechanism, without which such mechanism could not be implemented.

Taking into account the results of the adequacy assessment of the Lithuanian power system and the identified challenges from 2025, also in accordance with Article 20 of Regulation (EU) 2019/943 of the European Parliament and of the Council on the internal market for electricity, which requires Member States with power system adequacy problems to draw up and publish implementation plan with a timeline for adopting measures to eliminate any identified regulatory distortions or market failures as a part of the State aid process, the Lithuanian Electricity Market Development and Implementation Plan was prepared.

On 27 December 2019, the Ministry of Energy submitted the Lithuanian Electricity Market Development and Implementation Plan to the European Commission’s Directorate-General for Energy. The plan discusses the deregulation of the final electricity price for household consumers and the introduction of smart metering for electricity consumers. It also provides for the implementation of an electricity consumption data collection and exchange platform, sets out plans to implement changes in the balancing energy market from 2025 and to implement other electricity market development measures.

On 14 January 2020, the European Commission submitted the Lithuanian Electricity Market Development and Implementation Plan for a public consultation. The consultation lasted until 31 January. During this period, interested parties were given the opportunity to examine the plan and submit their proposals. The European Commission’s public consultation on the Lithuanian Electricity Market Development and Implementation Plan can be found here.

The opinion of the European Commission on the Lithuanian Electricity Market Development and Implementation Plan is expected to be approved by the end of April 2020. This would bring us closer to the last stage of coordination of state aid for the implementation of the capacity mechanism in Lithuania with the European Commission.

On 30 April 2020 European Commission issued official opinion on the Lithuanian Electricity Market Development and Implementation Plan. This opinion is one of the necessary steps towards finalisation of state aid process with the European Commission in order to implement the capacity mechanism in Lithuania. In the opinion European Commission agrees with proposed market reforms although provides some recommendations to assess the possibilities of including additional measures to promote more efficient market development. Commission opinion of 30.4.2020 pursuant to Article 20(5) of Regulation (EC) No 2019/943 on the implementation plan of Lithuania can be found here.

After review and evaluation of recommendations provided in the European Commission’s opinion Lithuania is planning to amend Electricity Market Development and Implementation Plan and publish updated version.

After being reviewed and evaluated according to recommendations provided in the European Commission’s opinion, Lithuanian Electricity Market Development and Implementation Plan is amended and published. Updated Lithuanian Electricity Market Development and Implementation Plan can be found here.

Press releases:

2019 12 27

Europos Komisijai pateiktas Lietuvos elektros rinkos plėtros įgyvendinimo planas

2020 01 15

Europos Komisija paskelbė viešąją konsultaciją dėl Lietuvos elektros rinkos plėtros įgyvendinimo plano

2020 05 22

EK pateikta nuomonė dėl Lietuvos elektros rinkos plėtros plano - dar vienas žingsnis pajėgumų užtikrinimo mechanizmo įgyvendinimo link  

2020 08 03

Lithuanian Electricity Market Development and Implementation Plan has been updated

 

 

On 24 September 2019, the Ministry of Energy submitted for public consultation amendments to the Law on Electricity, which envisage the implementation of a capacity mechanism in Lithuania. These amendments aim to create a system that will help ensure the reliable operation of the Lithuanian power system and a sufficient level of security of power supply after 2025, i.e. after de-synchronization of the Lithuanian power system from the IPS/UPS system.

The draft Law on Electricity proposes to establish a capacity mechanism that would ensure the adequacy of the system and maintain the Loss of Load Expectation (LOLE) of up to 8 h/year.

The capacity mechanism will be implemented by organising technology-neutral auctions, meaning that the auctions will be open to not only generation facilities, but also storage facilities (such as batteries), equipment operated by independent demand response aggregators. The auctions will be open not only to existing, but also to future generation sources, which should be installed by 2025.

The new facilities will replace technologically obsolete, inefficient and non-compliant facilities. It would also contribute to climate change mitigation goals.

The capacity mechanism will also be open to other EU Member States whose power system is connected to the Lithuanian power system, natural persons or legal entities, other organisations or their subdivisions operating existing capacity facilities in that Member State.

The 4 December 2019 meeting of the Government of the Republic of Lithuania involved a presentation of the capacity mechanism, which can be accessed here. On 30 December 2019, the Government of the Republic of Lithuania approved the amendments to the Law on Electricity prepared by the Ministry of Energy, which will allow Lithuania to create and implement a capacity mechanism. It will ensure the reliable operation of the power system and a sufficient level of security of power supply after 2025.

On 14 January 2020, the amendment to the Law on Electricity was submitted for considerations to the Parliament (Seimas) of the Republic of Lithuania.

On 4 June 2020, Parliament (Seimas) of the Republic of Lithuania adopted the Law No. XIII-3020 on the Amendments to Articles 2, 6, 7, 9, 18, 31 and 78, and the Addition of Section 101 to the Law on Electricity No. VIII-1881, which can be accessed here (lithuanian language) and here (english language).

On 19 June 2020 implementing the adopted law, draft of subsidiary legislation – Capacity Mechanism Implementation Rules of Procedure was provided for public consultation. These Rules of Procedure establishes procedures for implementation of capacity mechanism in general, methods for capacity allocation during capacity auctions, terms and conditions of contracts on capacity delivery, payment arrangements for delivered capacity, etc. Draft Rules of Procedure can be accessed here.

 

On 3 July 2020 implementing the adopted law, draft of subsidiary legislation – Capacity Auction Regulations was provided for public consultation. These Regulations establishes procedure for organising capacity auctions, technical requirements for existing and planned capacity, as well as the procedure for approving and publishing results of the capacity auction. The objective of the Regulations is to ensure transparent, based on competitiveness and the principle of technological neutrality, qualification of capacity auctions participants. Draft Regulations can be accessed here.

 

Press releases:

2019 09 24

Patikimam elektros energetikos sistemos darbui užtikrinti – ilgalaikis pajėgumų mechanizmas

2019 12 30

Vyriausybė pritarė mechanizmui, kuris prisidės prie patikimo elektros energijos gamybos užtikrinimo

2020 01 14

Elektros pajėgumų užtikrinimo mechanizmas jau svarstomas Seime

2020 06 04

Seimas pritarė modeliui, kuris užtikrins patikimą Lietuvos elektros energetikos sistemos veikimą

 

Last updated: 05-05-2020