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3. Design objectives

Design objectives work as a guidance for designing market mechanisms and a framework for evaluation of performance of the mechanisms. This chapter describe the primary and secondary objectives for a Nordic design, including constraints.

To guide the market design process, a structured framework of design objectives and constraints has been developed.

Primary objectives define the overarching vision for an effective market design, focusing on the desired end-state without being constrained by physical limitations.

Secondary objectives provide context by addressing key questions:

What must the market deliver to achieve the primary objectives?
Are there factors that, while not defining ultimate success, are still crucial to consider?

Design constraints, whether physical, regulatory, or policy-driven, set the boundaries within which the mechanism can be designed.

Exhibit 3.1 below provide a high-level overview of the design objectives. A more detailed description of each objective can be found in Annex A.

Exhibit 3.1 – Design objectives overview
Market objectives work as a guidance for designing markets and a framework for evaluation of market design performance


Cost efficient provision by; minimising overall system cost; promote efficient use of resources; avoid over-procurement and market distortion	Practical Ease of implementation Simplicity in market participation Ease of ongoing operation	Market-based
Maintain system security by; securing adequate capacity; complying with reliability standards; and incentivising investment in reliable & flexible resources	Investable Respecting existing investments Supporting efficient future investments – sufficient incentives	EU regulatory compliance
Support a zero-carbon system, by; promoting low-carbon technologies; and incentivising flexibility	Transparent Visibility of TSO needs, bids & results Clear procurement decisions Broadly understood mechanism	Targeting new investments (NFFSS)
	Enduring (stable) Suitable/adaptable to future challenges Well understood governance for changes	Non-fossil (NFFSS)
	Limit negative cross-border impact Limit market distortion on neighbouring markets Fair distribution of payments	Facilitate cross-border participation (CRM)

Note: The objectives were created by AFRY and agreed within the project group as a set of guidelines for the project.
Source: AFRY.

3.1 Primary objectives: The energy trilemma

The energy trilemma arises from the challenge of balancing the following three key objectives simultaneously:

Cost efficient provision: Ensuring that electricity markets operate competitively, minimising costs for consumers and avoiding excessive subsidies or distortions.
Maintain system security: Guaranteeing that electricity is available when needed, even during peak demand or supply shocks, by incentivising adequate investment in reliable capacity.
Support a zero-carbon system: Structuring the market to support decarbonisation, encouraging investment in renewables, energy storage, and low-carbon flexibility solutions.

These objectives can often be in conflict:

Cost efficiency vs. security of supply: A purely market-driven approach may lead to underinvestment in firm capacity, increasing the risk of blackouts. On the other hand, capacity mechanisms that ensure reliability can add costs and distort price signals.
Cost efficiency vs. zero-carbon: A technology-neutral market may favour fossil fuel generation in the short term due to their established infrastructure and lower marginal costs, but direct support for renewables can distort competition and increase system costs.
Security of supply vs. zero-carbon: Fossil fuels have historically provided stable generation but phasing them out too quickly without sufficient low-carbon flexibility (e.g., storage, DSR) could compromise grid stability.

Addressing the trilemma requires careful design of solutions. Ultimately, no single design perfectly resolves the trilemma, so policymakers must strike a balance that evolves with technology, system needs, and policy priorities.

3.2 Secondary objectives

The secondary objectives serve as guiding principles to ensure the proposed market design is not only effective in addressing the missing money problem but also viable in practice. These objectives help balance economic, regulatory, and operational considerations, supporting a well-functioning market:

Practical: The proposed mechanism must be feasible to implement, avoiding unnecessary complexity that could hinder adoption or effectiveness. It must also be practical to operate.

Transparent: Clear and predictable rules enhance trust among market participants, reduce regulatory uncertainty, and improve decision-making for investors and policymakers.
Investable: A stable and predictable framework is essential to attract long-term investment in flexible and low-carbon capacity, ensuring security of supply. A solution must also respect existing investments.
Enduring: The design should be robust to future changes in technology, policy, and market conditions, minimising the need for frequent revisions.
Limit negative cross-border impact: To maintain market efficiency and fairness, the design must avoid unintended distortions in neighbouring markets and ensure a fair distribution of costs and benefits.

Further details on each objective are provided in Annex A.

3.3 Design constraints

The design constraints ensure that the proposed market mechanism operates within clear boundaries, aligning with policy goals, regulatory frameworks, and practical implementation considerations. These constraints help shape a solution that is both effective and compliant with broader energy market principles:

Market-based: The design should leverage competitive market principles to ensure cost efficiency, minimise distortions, and allow price signals to drive investment and operational decisions.
EU regulatory compliant: The mechanism must align with EU state aid and electricity market regulations to ensure the design is approved by the EU commission.
Targeting new investments (NFFSS only): The mechanism should primarily support the development of new flexible capacity rather than subsidising existing assets.
Non-fossil (NFFSS only): Given the design principles in the NFFSS regulation, the design should focus on supporting low-carbon or zero-emission flexibility solutions.
Facilitate cross-border participation (market-wide CRM only
Targeted schemes may deviate from this requirement, if it is established that cross-border solutions does not solve the adequacy concern.
): Given the regulation of CRMs, the design should enable participation from assets in neighbouring countries where possible, improving efficiency and security of supply across borders.

Further details on each constraint are provided in Annex A.