ENTSO-E believes that the full implementation of market design changes exposing all demand and RES to price fluctuations, cost-reflective balancing prices and market-based hedging products minimises the need for capacity mechanisms and might in the long run make them redundant.
Capacity mechanisms might, however, remain a possible element of the market design, depending on how successfully market signals and innovation will deliver the needed flexibility and system adequacy, in line with political targets on security of supply. In the future world of smart grids, smart commerce and smart homes, billions of signals from customers on the value to them of electricity at particular times and for particular uses will in aggregate send investment signals for generation, storage and demand response capabilities.
Over the coming years, the no-regret recommendations from our September 2014 policy paper on market design should become reality, i.e., demand should become responsive to price signals, scarcity pricing will be introduced, the effect of taxes and levies that can blunt price signals will be reduced, and hedging products will be developed. The more that is the case, the more aggregate customer signals can drive investment decisions.