The European Commission has approved Spain’s new capacity mechanism, which will mobilize up to €9 billion ($10.4 billion) over the period 2026-2036. The scheme will compensate electricity sources for remaining available during periods of system stress or scarcity, including generation, storage and demand-side response.
The mechanism, which will start in May 2026, is expected to run for ten years with an estimated annual budget of around €900 million, depending on the results of future capacity auctions.
The Spanish grid operator Red Eléctrica de Spain (REE), will administer the scheme, which will reimburse the capacity required to meet the national “reliability standard” – defined as the maximum acceptable number of hours of load loss to ensure security of supply. This metric is based on the Spanish Resource Adequacy Assessment and has been validated by the Agency for the Cooperation of Energy Regulators (ACER).
The aim is to guarantee sufficient robust and flexible capacity when sustainable production is insufficient or when grid stability is at risk. The mechanism will be open to existing plants and new projects in the areas of generation, energy storage and demand response, provided they meet environmental and availability criteria.
Capacity will be allocated through competitive, transparent and non-discriminatory auctions. Participants will compete on the level of compensation requested per MW of available capacity during periods of scarcity, a design intended to limit market disruptions and reduce consumer costs.
According to the European Commission, the scheme includes safeguards to prevent unnecessary benefits for specific market participants and to prevent disruptions to cross-border electricity flows. Although initially limited to assets in Spain, the government has committed to gradually allowing the participation of facilities in other EU member states, in line with deeper integration of the internal electricity market.
Brussels’ approval follows the Spanish proposal, which was put forward at the end of 2024 following a public consultation on the ministerial decision establishing the framework.
The government has outlined three types of auctions under the mechanism: nine-year auctions for new investments, designed on a technology-specific basis with contract durations of up to 15 years; five-year auctions for projects that are under development or already have operating permits; and one-year retrofit auctions for existing plants, aimed at addressing potential adequacy gaps.
