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 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