Compliment of the month: ACM opens discussion on capacity mechanisms

In the 'compliment of the month' series of messages, we want to focus on a stakeholder who is trying to accelerate the implementation of energy storage in his or her own way. For the month of March, our compliment goes to the ACM, who in a recent publication explains which considerations are important when arriving at a capacity mechanism in the Netherlands. Energy Storage NL appreciates the proactive attitude of the ACM to already think about a capacity mechanism and is happy to help with the further design of this.

Capacity mechanism

TenneT's annual Security of Supply Monitor clearly shows that the number of hours with a (threatened) electricity shortage is increasing. This can lead to price peaks and possible involuntary disconnection, with major economic and social impact as a result. The current market structure does not provide sufficient incentives for investments in flexibility, and many other European countries have already taken steps to ensure that sufficient flexible capacity is available on time. The Netherlands is therefore also looking into setting up compensation for having production capacity, storage or demand response available to guarantee security of supply.

Energy storage in capacity mechanisms

In its consideration of capacity mechanisms, the ACM identifies several considerations that have an impact on the role that energy storage can play.

Strategic reserve or active market participation:

• A strategic reserve places certain capacity outside the market, including storage capacity. This limits the use of storage to emergency situations, while active market participation allows for broader market integration .

Targeted capacity support versus market-wide capacity compensation:

• Targeted support can specifically favour storage capacity, which is beneficial if storage is considered crucial for security of supply. Market-wide mechanisms are technology-neutral, requiring storage capacity to compete with other technologies .

Central or decentralized purchasing:

• With central purchasing, capacity such as storage is purchased by a central party (for example TenneT). With decentralised purchasing, market parties must arrange storage capacity themselves, which provides different incentives for investments .

Incentives for availability:

• Mechanisms such as penalties or reliability options influence how storage capacity is deployed. For example, reliability options can incentivize storage to be available during price peaks .

Technical requirements and reduction factors:

• For technologies such as storage, a derating factor is often applied, which determines how much of the storage capacity counts towards the capacity mechanism. This affects the financial feasibility and the role of storage in the system .

ESNL: vision needed on the role of storage in security of supply

The monitoring report on security of supply makes it clear that there are major concerns about the available capacity. It is evident that energy storage will play an important role in filling that capacity, but ESNL expects that the steps taken so far (including TDTR, CSC) are insufficient to realize the required capacity. Other flexibility options are interconnection with foreign countries and demand management, but their potential is highly uncertain. Surrounding countries will experience shortages at the same times, and energy users will only be able to offer flexibility to a limited extent at the times when it is most needed.

Therefore, additional measures will have to be taken to continue to guarantee capacity. A capacity mechanism can be an important part of the solution. A recent analysis by Rabobank shows that countries with a capacity mechanism (including the UK and Italy) are leading the way in the implementation of energy storage. ESNL appreciates that ACM is now starting the discussion on the capacity mechanism and calls for the storage sector to be actively involved in the development of a concept design.