The Spanish energy sector has long awaited the implementation of a capacity market. This initiative, recently proposed by the Ministry for the Ecological Transition and the Demographic Challenge (MITECO), represents a highly positive step for the security and flexibility of the electricity system. However, there are still some aspects that need improvement to allow full demand-side flexibility to participate realistically.

A long-awaited market

The capacity market aims to ensure that the electricity system has sufficient resources to meet demand during critical moments. This measure is essential to prevent supply risk situations and enhance system reliability. MITECO’s current proposal defines a capacity remuneration model that will allow participants to receive additional revenues for ensuring energy availability when needed.

The sector views this initiative as a necessary step forward and welcomes MITECO’s proposal, which was put forward last December. In particular, the demand flexibility sector appreciates that demand-side resources can participate in aggregations of more than 1 MW, unlike the Active Demand Response Service, where participation is limited to individual installations of over 1 MW per CUPS.

Barriers to demand participation

One of the main areas for improvement is the real-time measurement requirement for demand-side installations wishing to participate in the capacity market. Under the current proposal, these installations would need to have a real-time communication system with the authorised generation and demand control centre. This requirement could present an unnecessary entry barrier for many consumers and aggregators, especially since activation in the capacity market occurs with several hours’ notice rather than in real time.

Removing this requirement would enable broader demand-side participation and enhance system flexibility. Furthermore, there is no strong technical justification for requiring real-time measurement, given that the capacity market does not operate in this manner. Similarly, in most capacity markets implemented in neighbouring countries such as the UK, this requirement is not necessary, demonstrating that system stability can be ensured without this additional constraint.

Funding the capacity market: a more efficient approach

Another aspect requiring review is the funding mechanism for the capacity market. The current proposal establishes that the service cost is distributed across the P1 and P2 tariff segments, which account for nearly 50% of the total annual hours. However, the actual hours of highest system stress only represent approximately 10% of the year.

This cost allocation model results in a broad-based charge without providing a clear price signal for consumers. A more efficient alternative would be to apply costs only during the hours when the capacity market is actually used. This would ensure that end customers receive an appropriate price signal while also enabling implicit participation by adjusting their consumption accordingly.

The capacity market is a highly positive and necessary initiative for the Spanish electricity system. 

However, to ensure its success, it is crucial to address certain aspects, such as the real-time measurement requirement and the proposed funding model. With these improvements, this market could become a key tool for securing electricity supply and promoting a more equitable and efficient participation of all stakeholders in the sector.

Anna Casas, Coordinator of the Demand Flexibility Working Group and Flexibility Lead for Spain at Octopus Energy.