CRM | Centralised availability obligation | Require capacity providers to commit to making their resources available when needed, with obligations set and enforced by a central authority, such as a TSO. All providers meeting the eligibility criteria receives capacity payments in exchange for providing system reliability. | |
Centralised reliability option | Providers receive payments in exchange for committing to make their capacity available when needed, with obligations set and enforced by a central authority, such as a TSO. If market prices exceed a predefined strike price, the capacity provider must compensate the system operator for the difference, ensuring both availability and cost control. The strike price ensures that the provider is incentivised to offer its capacity when needed. | ||
Decentralised reliability option | Providers receive payments in exchange for committing to make their capacity available when needed, with obligations set and enforced by either retailors and PIUs. If market prices exceed a predefined strike price, the capacity provider must compensate the option holder for the difference, ensuring both availability and cost control. The strike price ensures that the provider is incentivised to offer its capacity when needed. | ||
CRM | Strategic reserve 2.0 | A modified version of the current strategic reserves in the Nordic market, which is centrally coordinated targeted at the extension of existing generation and to spur DSR. This includes CHPs who can switch from for example heat pumps or electric boilers to other fuels to produce heat. Awarded capacity is ring-fenced from the wholesale market, but ready to deliver when called upon by the TSO. | |
NFFSS | Centralised availability obligation | Require capacity providers to commit to making their resources available when needed, with obligations set and enforced by a central authority, such as a TSO. The mechanisms is targeted towards new assets. Contracted providers receives capacity payments in exchange for providing system reliability. | |
FRR availability obligation | Require capacity providers to commit to making their resources available in the FRR EAM when needed, with obligations set and enforced by a central authority, such as a TSO. This is similar to the existing FRR CM, however, assets are provided years in advance to allow for new-build and contract periods are longer. Providers must at minimum reach the FRR eligibility criteria. | ||
Dispatchable flexible reserve | Operate in a manner similar to strategic reserves by providing dedicated and restricted capacity, but with enhanced flexibility. The awarded capacity is excluded from competitive market participation and is activated exclusively during periods of critically high prices, preferably within SIDC, or alternatively within SDAC. |
Design alternative | Reasoning | Shortlisted |
CRM | ||
Targeted tender | Targeted, direct investment support for a specific technology, could effectively solve an identified need given perfect information. The mechanism would not allow for competition between technologies and not allow aggregators to provide their pooled capacity. It would also severely distort the market as the procured capacity could freely operate in the market, which is not aligned with the current Nordic energy-only market. This design is therefore not brought forward to the shortlist. | X |
Strategic reserve 2.0 | The general concept of a strategic reserve is well-known in the Nordic region and is a solution considered by some TSOs also for the future. However, this version of the strategic reserve is designed to address the limitations of traditional strategic reserve schemes, namely: - a lack of eligible MW for reservation - inflexibility due to long ramp-up times; and - complex TSO last resort dispatching rules. This could potentially be a cost-efficient solution to keep existing capacity and attract new sources of flexibility in the market. | ✓ |
Targeted capacity payment | The mechanism is price-based, meaning that all eligible capacity providers receive a predetermined payment. Unlike auction-based mechanisms, which determine capacity prices through competitive bidding, this mechanism provides a fixed payment to all qualifying capacity resources. Since it is not a competitive procurement process, this is not in line with current EU law. | X |
Market-wide capacity payment | The mechanism is price-based, meaning that all eligible capacity providers receive a predetermined payment. Unlike auction-based mechanisms, which determine capacity prices through competitive bidding, this mechanism provides a fixed payment to all qualifying capacity resources. Since the mechanism does not include a competitive procurement process, it is not in line with current EU law. | X |
Centralised availability obligation | Relatively simple, market-oriented structure which seemingly can be easily adapted to the Nordic model. The design may also serve as a good benchmark for other designs. | ✓ |
Decentralised availability obligation | Given that this design proved ineffective in the large French market, it is considered unlikely to be suitable for the smaller Nordic markets. Instead, the Decentralised Reliability Option is examined in order to ensure that at least one decentralised design is included in the shortlist. | X |
Centralised reliability option | Well established, market-oriented structure. Centralised reliability options should lead to similar outcomes as an availability obligation; however, the option setup ensures revenues to the TSO which can use these revenues to lower grid fees. | ✓ |
Decentralised reliability option | To include one decentralised design, the decentralised reliability option design is included. This is an innovative and un-tested design that allows each market participant to buy “insurance” (in the form of options) against high prices. The options should work as a price celling where each market participant can choose how high price peaks are tolerable, and at the same contributing to secure sufficient capacity for the system as a whole. | ✓ |
NFFSS | ||
Targeted flexibility tender | Targeted, direct investment support for a new assets compliant with the NFFSS regulation, could help to promote certain types of technologies and solve identified needs. The mechanism would not allow for competition between technologies and not allow aggregators to provide their pooled capacity. It would also severely distort the market as the procured capacity could freely operate in the market, which is not aligned with the current Nordic energy-only market. This design is therefore not brought forward to the shortlist. | X |
Centralised availability obligation – NFFSS | Relatively simple, market-oriented structure which seemingly can be easily adapted to the Nordic model. The design allows for targeting new assets, that are obliged to participate in the market, efficiently supporting system adequacy. | ✓ |
Centralised reliability option – NFFSS | While considered effective as a market-wide scheme, but challenging to implement an option structure that entails only new, NFFSS compliant assets. An availability obligation structure is in this case considered more suitable. | X |
Decentralised reliability option – NFFSS | While considered effective as a market-wide scheme, but challenging to implement an option structure that entails only new, NFFSS compliant assets – especially in a decentralised procurement structure due to the complexity. An availability obligation structure is in this case considered more suitable. | X |
Dispatchable flexible reserve | The other NFFSS designs would be allowed to operate in wholesale markets, while the dispatchable flexible reserve would be ring-fenced from the market in a similar fashion as the strategic reserve 2.0 CRM. However, this design will aim at new, NFFSS compliant assets instead of keeping existing (potentially thermal) assets in the market. The scheme would be easy to implement and operate relative to other designs. | ✓ |
FRR availability obligation | Changes in the electricity market may give rise to specific need for ancillary services. In such cases, a scheme aimed at a specific service may to a lesser extent distort the overall wholesale market, at least directly, than other mechanisms. The scheme would be easy to implement and operate relative to other designs, as it utilises existing markets. | ✓ |
MACSE | MACSE is a relatively complex scheme aimed at BESS, in which market participants—typically generators of intermittent electricity—purchase time-shifting products in a newly established market operated by the TSO. While the scheme is likely to incentivise increased BESS participation, its complexity may limit broader applicability. Moreover, the scheme is not considered fit for purpose in the Nordic context, where flexibility is generally not a regular concern due to the significant share of hydropower in the system under normal conditions. Alternative mechanisms may achieve similar outcomes while enabling competition across different technologies. Consequently, MACSE and schemes with comparable structures are not deemed suitable for the Nordic region. | X |
Building block | Design choice | Description |
Market-wide vs targeted | Targeted | Targeted capacity mechanisms focus on specific types of capacity or particular segments of the market. These mechanisms are designed to address specific needs or gaps in the electricity supply, such as incentivising the development of renewable energy sources or ensuring the availability of peaking power plants. By concentrating on particular resources, targeted mechanisms can provide tailored solutions to specific challenges within the electricity market. |
Determining and securing volume | Fully centralised | In a fully centralised market, a central authority, such as the transmission system operator (TSO), is responsible for organising the procurement process. The central authority is contracting with providers to ensure system reliability. |
Product obligation | Ring-fenced | Providers receive payment only for availability but must ensure firm availability with a high expectation of reliability throughout the contract period. Capacity is ring-fenced from the market and awaits dispatch instructions from the TSO. Units do not earn revenues from participating in the wholesale energy market, but activations are compensated by a cost-based payment. Activation happens in the balancing market, and if activated, balancing price is set to VoLL or the price cap in the intraday market, whichever is highest, in line with Article 22(2)(b) of the Electricity Regulation (EU 2019/943). Warming contract, to have the unit ready on short notice, is possible if required. |
Eligibility & performance standards | Fixed eligibility | Fixed eligibility means that there are absolute minimum requirements that must be met to participate in the capacity mechanism. This is a known concept from for example the ancillary service markets where technical minimum standards must be met to participate. The criteria could also be set to aim the mechanism at for example only new, non-fossil assets in a given bidding zone or location. |
Recovery scheme | TSO | Costs are socialised and borne by the TSO, who recovers them through regulated grid tariffs or via other means. The scheme should be non-targeted (kWh-based surcharge). |
Building block | Design choice | Description |
Market-wide vs targeted | Market-wide | Market-wide capacity mechanisms are designed to ensure that all capacity required to maintain system reliability receives payment. This approach includes both existing and new capacity providers. It aims to provide a comprehensive solution to resource adequacy and to promote competition among a wide range of providers. |
Determining and securing volume | Fully centralised | In a fully centralised market, a central authority, such as the transmission system operator (TSO), is responsible for organising the procurement process. The central authority is contracting with providers to ensure system reliability. |
Product obligation | Availability obligation | Providers receive capacity payment solely for availability in the SDAC, with no additional compensation for activation, as they earn revenues from participating in the wholesale energy market. They are required to ensure the awarded capacity is available when called upon but are otherwise free to operate in the market. |
Eligibility | Dynamic eligibility | Dynamic eligibility entails that the assets must meet a lower minimum requirement, but the quality of the service impacts the selection process (i.e. which providers are successful in the procurement process). The minimum requirement could for example be new, non-fossil assets. In the next stage, based on the needs assessment, one defines performance standards and associated derating factors. |
Recovery scheme | TSO | Costs are initially borne by the TSO and subsequently recovered through regulated grid tariffs or alternative mechanisms. To ensure cost-reflectivity and support behavioural change, cost recovery is linked to peak consumption, by applying a kilowatt-based surcharge during predefined peak periods. |
Building block | Design choice | Description |
Market-wide vs targeted | Market-wide | Market-wide capacity mechanisms are designed to ensure that all capacity required to maintain system reliability receives payment. This approach includes both existing and new capacity providers. It aims to provide a comprehensive solution to resource adequacy and to promote competition among a wide range of providers. |
Determining and securing volume | Fully centralised | In a fully centralised market, a central authority, such as the transmission system operator (TSO), is responsible for organising the procurement process. The central authority is contracting with providers to ensure system reliability. |
Product obligation | Availability obligation | Providers receive capacity payment solely for availability in the SDAC, with no additional compensation for activation, as they earn revenues from participating in the wholesale energy market. They are required to ensure the awarded capacity is available when called upon but are otherwise free to operate in the market. |
Eligibility | Dynamic eligibility | Dynamic eligibility entails that the assets must meet a lower minimum requirement, but the quality of the service impacts the selection process (i.e. which providers are successful in the procurement process). The minimum requirement could for example be new, non-fossil assets. In the next stage, based on the needs assessment, one defines performance standards and associated derating factors. |
Recovery scheme | TSO | Costs are initially borne by the TSO and subsequently recovered through regulated grid tariffs or alternative mechanisms. To ensure cost-reflectivity and support behavioural change, cost recovery is linked to peak consumption, by applying a kilowatt-based surcharge during predefined peak periods. |
Building block | Design choice | Description |
Market-wide vs targeted | Market-wide | Market-wide capacity mechanisms are designed to ensure that all capacity required to maintain system reliability receives payment. This approach includes both existing and new capacity providers. It aims to provide a comprehensive solution to resource adequacy and to promote competition among a wide range of providers. |
Determining and securing volume | Fully decentralised | Fully decentralised markets place the responsibility on individual market participants, such as retailers and generators or flexibility providers. These entities negotiate contracts directly based on their own assessments of future needs. Decentralised models offer greater flexibility, allowing participants to leverage their in-house knowledge, which can foster innovation and more tailored solutions. In a decentralised market, market participants are typically incentivised to secure volumes as they otherwise risk the exposure to price spike in the relevant market. |
Product obligation | Energy reliability option | Providers receive payment for availability only, in form of issuing an option, and can offer the awarded capacity in the market. However, they must pay a ‘difference’ charge if the SDAC market price exceeds a predefined strike price. |
Eligibility & performance standards | Dynamic eligibility | Dynamic eligibility entails that the assets must meet a lower minimum requirement, but the quality of the service impacts the selection process (i.e. which providers are successful in the procurement process). The minimum requirement could for example be new, non-fossil assets. In the next stage, based on the needs assessment, one defines performance standards and associated derating factors. |
Recovery scheme | Retailers and PIUs | In a decentralised capacity mechanism, the responsibility of procurement and cost falls on the users of electricity. One could also require that the retailors charge a fixed fee to the end-user, similar to the Norwegian-Swedish electricity certificates system, to finance the capacity mechanism. |
Building block | Design choice | Description |
Market-wide vs targeted | Targeted | Targeted mechanisms focus on specific types of capacity or particular segments of the market. These mechanisms are designed to address specific needs or gaps in the electricity supply, such as incentivising the development of renewable energy sources or ensuring the availability of peaking power plants. By concentrating on particular resources, targeted mechanisms can provide tailored solutions to specific challenges within the electricity market. |
Determining and securing volume | Fully centralised | In a fully centralised market, a central authority, such as the transmission system operator (TSO), is responsible for organising the procurement process. The central authority is contracting with providers to ensure system reliability. |
Product obligation | Availability obligation | Providers receive capacity payment solely for availability in the SDAC, with no additional compensation for activation, as they earn revenues from participating in the wholesale energy market. They are required to ensure the awarded capacity is available when called upon but are otherwise free to operate in the market. |
Eligibility & performance standards | Dynamic eligibility | Dynamic eligibility entails that the assets must meet a lower minimum requirement, but the quality of the service impacts the selection process (i.e. which providers are successful in the procurement process). The minimum requirement could for example be new, non-fossil assets. In the next stage, based on the needs assessment, one defines performance standards and associated derating factors. |
Recovery scheme | TSO | Costs are initially borne by the TSO and subsequently recovered through regulated grid tariffs or alternative mechanisms. To ensure cost-reflectivity and support behavioural change, cost recovery is linked to peak consumption, by applying a kilowatt-based surcharge during predefined peak periods. |
Building block | Design choice | Description |
Market-wide vs targeted | Targeted | Targeted mechanisms focus on specific types of capacity or particular segments of the market. These mechanisms are designed to address specific needs or gaps in the electricity supply, such as incentivising the development of RES or ensuring the availability of peaking power plants. By concentrating on particular resources, targeted mechanisms can provide tailored solutions to specific challenges within the electricity market. |
Determining and securing volume | Fully centralised | In a fully centralised market, a central authority, such as the transmission system operator (TSO), is responsible for organising the procurement process. The central authority is contracting with providers to ensure system reliability. |
Product obligation | Ring-fenced (partly) | Providers receive payment only for availability but must ensure firm availability with a high expectation of reliability throughout the contract period. Capacity is ring-fenced from competitively participating in the market by having to offer the capacity in the SIDC [2h] before gate closing time at a predetermined high price. Alternatively, it can be within the SDAC or one of the following IDAs, contingent upon acceptable merit order distortion levels (to be determined by decision makers). Resources do not earn revenues when activated in the market, but activations are compensated by a cost-based payment. |
Eligibility & performance standards | Dynamic eligibility | Dynamic eligibility entails that the assets must meet a lower minimum requirement, but the quality of the service impacts the selection process (i.e. which providers are successful in the procurement process). The minimum requirement could for example be new, non-fossil assets. In the next stage, based on the needs assessment, one defines performance standards and associated derating factors. |
Recovery scheme | TSO | Costs are initially borne by the TSO and subsequently recovered through regulated grid tariffs or alternative mechanisms. To ensure cost-reflectivity and support behavioural change, cost recovery is linked to peak consumption, by applying a kilowatt-based surcharge during predefined peak periods. Any revenue generated from market activation at the designated strike price is used to offset the costs. |
Building block | Design choice | Description |
Market-wide vs targeted | Targeted | Targeted mechanisms focus on specific types of capacity or particular segments of the market. These mechanisms are designed to address specific needs or gaps in the electricity supply, such as incentivising the development of renewable energy sources or ensuring the availability of peaking power plants. By concentrating on particular resources, targeted mechanisms can provide tailored solutions to specific challenges within the electricity market. |
Determining and securing volume | Fully centralised | In a fully centralised market, a central authority, such as the TSO, is responsible for organising the procurement process. The central authority is contracting with providers to ensure system reliability. |
Product obligation | Service-specific availability obligation | Providers receive capacity payments solely for the obligation to make flexibility available by participating in the aFRR/mFRR energy activation market (EAM). Awarded participants may generate further revenue through the participation in the FRR EAM markets if their bids are activated. |
Eligibility & performance standards | Fixed eligibility | Fixed eligibility means that there are absolute minimum requirements that must be met to participate. This concept is well established in, for example, ancillary service markets, where technical minimum standards must be met as a condition for entry. The eligibility criteria can also be designed to target specific asset types, such as exclusively new, non-fossil assets, within a particular bidding zone or geographic location. |
Recovery scheme | TSO | Costs are initially borne by the TSO and subsequently recovered through regulated grid tariffs or alternative mechanisms. To ensure cost-reflectivity and support behavioural change, cost recovery is linked to peak consumption, by applying a kilowatt-based surcharge during predefined peak periods. |