The core question of the project TeKaVe - Technology-neutral capacity mechanisms for a secure energy future is whether the current market system in Austria (energy-only market) is capable of maintaining a secure energy system while simultaneously achieving Austria’s decarbonization targets.
In recent years, the electricity market has been subject to strong fluctuations and market interventions, which can have significant impacts on security of supply. In addition, high shares of RES, driven by support schemes, have led to highly variable generation as well as an increasing need for flexibility, additional generation technologies, and storage capacities. Furthermore, the Ukraine crisis since mid-2021 has triggered unprecedented price increases. However, increased price volatility, geopolitical uncertainty, and short-term market interventions do not provide long-term planning security and therefore fail to create sufficient investment incentives. It is therefore likely that, alongside further RES expansion to meet ambitious decarbonization targets, the energy-only market alone will not provide sufficient incentives for future investments.
In many European countries, various CM, such as centralized or decentralized capacity markets and strategic reserves, are already in place. In addition, other innovative options have been proposed (e.g. capacity subscriptions). Future-oriented measures require the participation of all providers, including dispatchable generation, storage, demand response, and RES. These must be considered when designing any type of capacity mechanism. Due to long lead times, action is already required today.
Factsheet#
| Short name | TeKaVe |
| Title | Technology-neutral capacity mechanisms for a secure energy future |
| Duration | 01.03.2024 – 31.08.2025 |
| Partners | 3 (show all) |
| Project type | Co-funded research project |
| Project lead AIT | Stefan Strömer |
Overview#
The core question of the project is analyzed from both regulatory and economic perspectives. For the economic analysis, an innovative modeling approach is applied that combines investment optimization with agent-based market modeling. This allows different capacity mechanism designs to be compared and the impact of additional factors such as RES support schemes, CO2 pricing, and flexibility measures to be assessed.
Insights#
Insufficient investment incentives in the energy-only market#
The analysis shows that the current energy-only market in Austria does not provide sufficient investment incentives for new capacities and thus poses a risk to long-term security of supply.
Regulatory uncertainties as a key challenge#
Uncertainties in regulatory and political frameworks, as well as the absence of scarcity pricing, complicate investment decisions and represent major challenges.
Capacity market as a suitable solution#
Modeling results indicate that a capacity market is an efficient way to ensure security of supply while minimizing market distortions.
Limitations of alternative mechanisms#
Alternative approaches such as flexibility tenders or strategic reserves either lead to high costs or show limited effectiveness in the Austrian context.
Importance of European harmonization#
Stronger alignment with European frameworks, particularly CISAF, can accelerate approval processes, increase regulatory certainty, and promote cross-border participation.
Avoiding lock-in effects#
When designing capacity mechanisms, it is crucial to avoid lock-in effects of fossil technologies in order to achieve energy and climate targets.
Role of regional and technological diversity#
Technology neutrality and the consideration of regional aspects are important for efficiently covering future flexibility needs, even though their implementation may be complex.
Activities#
WP1: Project management
Lead: AIT
Effective project management - particularly coordination and controlling - with a focus on achieving project objectives and results. Includes time management, prioritization, facilitation of decision-making in technical matters, clarification of legal issues, and preparation of the consortium agreement. Also includes quality assurance, communication and dissemination of results, and discussion of interim and final results with relevant stakeholders.
WP2: Qualitative analysis
Lead: AIT
Review of existing approaches to security of supply in Europe and additional influencing factors. Selection of capacity mechanisms for modeling in WP3 and formulation of stakeholder and policy recommendations (Lead: EI-JKU).
WP3: Market modeling
Lead: AIT
Implementation of a combined model representing the EOM and selected capacity mechanisms. Comparison of different CM designs with the baseline scenario (EOM) and execution of scenario analyses.
WP4: Regulatory analysis
Lead: EI-JKU
Development of an appropriate compensation scheme for capacity markets based on at least three existing methods for calculating price caps. Analysis of at least three alternative solutions to capacity mechanisms, including exit premiums or transfer to public ownership, further development of existing markets (PICASSO, MARI), decommissioning bans, and strategic reserves, as well as analysis of the need for harmonization at the European level.
Further information#
Deliverables#
- D2.1 Existing approaches to ensuring security of supply in Europe
- D2.2 Stakeholder report
- D3.1 Model coupling report
- D3.2 Market analysis report
- D4.1 Regulatory framework for capacity markets
- D4.2 Policy brief
Publications#
Project partners#
- AIT Austrian Institute of Technology GmbH (Project coordination)
- Raiffeisenlandesbank Burgenland und Revisionsverband eGen
- Hydro GmbH, Engineering office for hydrogeology and geothermal energy
- Austrian Power Grid AG
- Axtesys GmbH
- Panasonic Marketing Europe GmbH
- rabmer GreenTech GmbH
- ENERGIE KOMPASS GMBH
- Pink GmbH
- HyCentA Research GmbH
- CANCOM Austria AG
- VERBUND Green Power GmbH
- VIRIDAD GmbH
- Norwegian University of Science and Technology
- Salzburg Research Research Association m.b.H.
- City of Eisenstadt
- Energienetze Steiermark GmbH
- University of Passau - Chair of Computer Networks and Communication Systems
- Geo5 GmbH
Funding#
This project was implemented under the call “Energy.Free.Space” des Federal Ministry for Agriculture and Forestry,Climate and Environmental Protection, Regions and Water Management (BMLUK). The project was carried out on behalf of the BMLUK by the Austrian Research Promotion Agency (FFG) More information can be found in the FFG project database