The government expects to imminently publish in the Official State Gazette the order creating a capacity market for Spain’s mainland electricity system. The mechanism will compensate the availability of generation, storage, and demand-side resources to strengthen security of supply during periods of greatest need.
The capacity market aims to strengthen the security of Spain’s electricity system
Deputy Prime Minister and Minister for Ecological Transition and the Demographic Challenge Sara Aagesen announced the launch of the instrument in the Congress of Deputies. The market is intended to provide reliability and flexibility to the electricity system, while facilitating the integration of storage and demand-side management.
Generation and storage facilities, consumers, and aggregators will be eligible to participate. Successful bidders will be paid for being available to inject electricity into the grid or reduce their consumption when required by the System Operator.
The model will apply across mainland Spain and is intended as a tool for advancing toward a net-zero carbon economy. Generating plants will not be allowed to exceed 550 grams of CO₂ per kWh, must meet the reliability and flexibility requirements set out in each tender, and may not receive regulated remuneration.
Annual auctions to promote renewables, storage, and demand-side management
Service provision will be awarded through technology-neutral auctions for firm capacity, measured in MW, and price, expressed in euros per MW per year. The system will be pay-as-bid, meaning each participant will receive the price it offered.
Eligible future investments may only involve renewable energy, storage, or demand-side projects. The design includes an annual main auction whenever reliability needs are identified, with service commitments generally lasting one year for existing facilities, up to 15 years for new investments, and between one and ten years for new demand-side resources.
There will also be annual adjustment auctions, reserved for facilities already in operation and intended to address temporary needs for 12 months. These will be supplemented by annual transitional auctions designed to ensure system reliability until projects awarded in the main auction begin providing service.
The volume and frequency of these tenders will depend on demand forecasts and adequacy assessments conducted over a five-year horizon.
Funding will weigh more heavily on periods of peak system stress
The cost of the capacity market will be borne by electricity retailers and direct market consumers. Funding will be allocated through unit prices differentiated by tariff segments and time periods aligned with transmission and distribution network charges.
The design places a greater contribution on consumption recorded during periods of highest system stress, which may not exceed 10% of the annual total. The mechanism is intended to shift demand to other time slots, flatten the load curve, and facilitate grid management.
The model will also include a secondary market for transferring awarded rights and obligations, both in the event of ownership changes and through transfers to other facilities meeting the requirements. The System Operator and the National Commission for Markets and Competition will be responsible for verifying and inspecting service delivery.
