The European Commission has approved a 9 billion euro ($10.51 billion) Spanish capacity mechanism aimed at securing electricity supply during periods of system stress, clearing the plan under EU State aid rules.
The scheme will run for 10 years from May 2026 and operate alongside Spain's existing electricity market. Its purpose is to ensure that backup resources are available when normal market conditions are insufficient to meet demand.
Under the system, Spain's transmission system operator determines how much backup capacity is required to meet a national reliability standard. That standard sets the maximum number of hours per year in which electricity demand can go unmet before supply security is deemed unacceptable.
To meet that requirement, Spain will hold competitive auctions in which power generators, battery storage operators and demand-response providers compete for contracts.
These contracts do not pay for electricity produced but for being available to respond when needed. Participants bid the price at which they are willing to keep capacity ready, and contracts are awarded to the lowest-cost offers.
Once contracted, these resources remain on standby under normal conditions. They continue to participate in regular electricity markets but must be prepared to respond when the system is under stress, such as during periods of unusually high demand or unexpected supply shortages.
When such scarcity events occur, the system operator can call on contracted resources to restore balance. Power plants may increase output, battery systems may discharge into the grid and industrial consumers enrolled in demand response schemes may temporarily reduce consumption.
At all other times, electricity flows through standard wholesale markets without intervention from the capacity mechanism. Additionally, the system is designed to avoid continuous control or forced switching, instead relying on financial incentives to ensure availability when needed.
The Commission said the measure is necessary to guarantee security of supply and is proportionate because payments are determined through transparent auctions that limit overcompensation and reduce the risk of market distortion.
It also noted that the scheme is open to both existing and new assets located in Spain, with the potential for broader participation from interconnected EU markets in the future.
The program is estimated to cost about 900 million euros per year, depending on auction outcomes, and was approved under Article 107(3)(c) of the EU Treaty and the Commission's 2022 State aid guidelines for energy and climate policy.