A new report from The Brattle Group, commissioned by Clean Air Task Force (CATF), identifies practical strategies for European policymakers to update capacity mechanisms and clean energy procurements to create mutually supportive incentives for meeting both reliability needs and long-term decarbonisation goals. With Europe’s energy mix shifting rapidly toward variable renewables, the report shows how enhanced and coordinated approaches to security of supply and clean energy procurement can reduce costs, enable cross-border trade, and accelerate the transition to carbon-free energy.
The report, Clean Security of Supply in Europe: Models for Market-Aligned Contracting and Procurement, examines different approaches to reliability planning and clean energy procurement, from enhanced energy-only markets, capacity mechanisms, multi-product markets, to centralised policy-driven planning. The authors note that existing approaches in Europe have been disconnected and uncoordinated at EU and regional levels, which risk resulting in overlapping support schemes and higher costs. The report provides options that European countries can adapt to their specific national contexts while maintaining competitive investment incentives and operational efficiency.
“European policymakers face a critical choice: continue managing security of supply and the clean energy transition as separate challenges or adopt coordinated approaches that can deliver both reliability and decarbonisation at lower cost,” said Lea Romm, Associate for Europe Policy on CATF’s Electricity Program. “The current disconnect between reliability planning, market design, and clean procurement is costing Europe billions while slowing progress toward building clean and secure energy supplies. The good news is that better models exist and are gaining traction in other jurisdictions, as this report shows.”
Dr. Andrew W. Thompson, a Brattle associate and coauthor of the report, explained that “Forward-thinking market and clean procurement designs can better support the energy transition. European policymakers have the opportunity to benefit from experience in other jurisdictions to develop more efficient approaches for achieving security of supply and a cleaner resource mix simultaneously. While a single Pan-European approach to security of clean supply does not yet exist, there are several intermediate steps that can be taken to encourage cross-border trade, enable demand-side resources to participate in markets, and address evolving flexibility and reliability needs.”
Key takeaways from the report include:
Current approaches create costly overlaps: Security of supply mechanisms in Europe have tended to support fossil generation, while disconnected clean energy procurement schemes often fail to incorporate reliability needs. This disconnect results in higher overall costs and risks locking in fossil fuel dependency.
Co-optimizing clean and reliability mechanisms reduces costs: The report highlights successful international examples, including Mexico’s long-term auctions, which (while short-lived) were successful in achieving record-low clean energy prices by co-optimising procurement of energy, capacity, and clean attributes in a single competitive process.
Updated capacity mechanism designs can support clean transition: Currently, a third of capacity support payments go to clean technologies, while gas leads in long-term contracts. Strategic design choices such as technology-neutral derating factors that accurately reflect each resource’s contribution to reliability, and regionalised product definitions that enable cross-border trade can help capacity mechanisms attract clean, flexible resources while maintaining system adequacy. Firm clean capacity can be more directly incentivized through a schedule of clean capacity requirements
The report presents a spectrum of market-aligned contracting and procurement models that European countries can consider ranging from more competition-driven to more policy-oriented planning:
- Enhanced energy-only markets use price signals during tight supply conditions to attract investment, with clean energy integration achieved through carbon pricing or tradable clean energy certificates that reward low-carbon generation.
- Capacity mechanisms combine energy markets with forward procurement of capacity resources, complemented by either long-term contracts for government-set clean supply volumes or targeted procurements of clean resources with greenhouse gas rate reduction requirements on generators. To be mutually supportive, both capacity mechanisms and clean energy procurements should incorporate aligned incentives to produce energy at the most valuable times and locations to support reliability and decarbonise the grid.
- Multi-product markets feature centralised procurement of distinct products for clean energy, clean capacity, and greenhouse gas reductions on a forward basis, typically involving one-year contracts for existing capacity and long-term contracts for new supply.
- Centralised planning ensures security of supply through integrated policy-driven planning with all-source procurements and market-aligned contract structures, where clean policy support determines which resource types are procured.
Each model can be tailored to national policy priorities while incorporating best practices for transparency, cross-border coordination, and technology-neutral competition. “Across all of these options, the central idea is to create clear policy and reliability goals that can be translated into well-defined, unbundled products,” said Dr. Andrew W. Thompson at the Brattle Group. “Once those products are created, both long-term contracts and spot markets can create mutually supportive incentives for the marketplace to identify new, lower-cost solutions for meeting these needs.”
“As gas remains the primary back-up technology for scaling renewables, the costs of capacity mechanisms have more than doubled since 2020,” said Lea Romm at CATF. “Member States that aim to decorbonise faster will need market structures that can attract the flexible, clean resources the system requires not just lock in fossil generation because it’s cheapest for reliability alone. The design principles outlined in this report can help ensure Europe’s capacity mechanisms support, rather than undermine, the transition to carbon-free energy.”
Read the report here for detailed case studies, design principles, and recommendations for integrating clean energy goals with security of supply planning in European electricity markets.
CATF and Brattle will also present the report’s findings at a webinar on March 5 at 3:00pm CET—register here to join the discussion on transatlantic learnings and policy pathways for Europe.