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Ensuring there are no power shortages when electricity is needed most: that is the goal of the new capacity mechanism approved for Spain by the European Commission in May 2026. This is an instrument designed to remunerate power plants, batteries, and large consumers for being available during periods of peak demand. How does it work? How much will it cost? What impact will it have on your electricity bill? We explain it to you.
What is a capacity mechanism and how does it work?
A capacity mechanism is a regulated payment system that remunerates certain actors in the electricity system (generation plants, storage facilities, or large consumers) for being available to act when the system needs them, regardless of what they earn from the energy they sell on the wholesale market.
The logic is simple: in an electricity system with a growing share of renewable energies, there may be times when the sun does not shine and the wind does not blow strongly enough to meet demand.
At these times, which may coincide with cold spells, heatwaves, or periods of stress on the grid, it is essential to have backup capacity, meaning facilities that, even if they are not generating at that moment, can be activated quickly to meet demand and guarantee supply at all times.
The capacity mechanism creates a specific market to provide this availability. Power plants, batteries, and flexible demand operators compete in auctions to receive remuneration in exchange for committing to remain operational during these critical moments. They are not paid to generate energy continuously, but rather to guarantee that they can do so when the system operator requires it.
This type of mechanism exists in several European countries, such as the UK, Italy, France, and Belgium, and is supported by the European Union's regulatory framework. Specifically, Regulation (EU) 2019/943 of the European Parliament and of the Council, known as the EU Electricity Regulation, establishes the conditions under which Member States can implement capacity mechanisms compatible with the internal electricity market.
The design of the mechanism approved for Spain complies with these requirements: the auctions are competitive, and selection is based on the price at which each participant offers their capacity per megawatt available during shortage situations.
Why is it being approved in Spain now?
Spain has been working on the design of its own capacity mechanism for several years. The formal process began in 2021 and, following a regulatory analysis process and negotiations with European institutions, the European Commission approved the mechanism in May 2026.
The measure responds to a structural need: Spain has one of the electricity systems with the highest penetration of renewable energies in Europe, and this transition, while positive for the environment and energy independence, introduces new challenges for managing the balance between supply and demand.
El Ministry for the Ecological Transition and the Demographic Challenge (MITECO) explains that the capacity mechanism seeks to ensure there is sufficient capacity to flexibly produce, store, or consume electricity, and that generation can meet expected demand at all times.
Furthermore, Brussels has verified that the mechanism does not distort the internal market and is proportionate to the actual needs of the system. To reach this point, Spain also had to draft an implementation plan required by the EU Electricity Regulation.
This plan was updated in 2025 and included commitments regarding the integration of renewables, improving demand response, and transparency in wholesale markets.
What impact will it have on electricity bills?
The projected amount for the Spanish capacity mechanism is approximately €900 million per year, representing an estimated total of €9 billion over the mechanism's ten-year lifespan (2026–2036).
This is the amount the electricity system expects to allocate to remunerate available capacity. However, the final amount each year will depend on the results of each auction, as competition between participants sets the actual price. The €900 million estimate appears conservative, and the final cost may be lower.
This cost will be passed on to consumers through the regulated electricity system charges, which form part of the electricity bill. Charges are one of the three main components of the electricity bill, together with grid access tariffs and the price of energy in the wholesale market. They are set by MITECO and applied to all consumers, although their weight varies depending on the contracted access tariff.
What can be stated is that one of the requirements imposed by the European Commission is that it must not cause a disproportionate increase in prices for consumers, and that the aid must be proportional to actual needs. This principle of proportionality is included in the design of the approved mechanism.
Who can participate in the capacity market?
The mechanism is designed to be technologically neutral and open to different types of participants. The following will be able to take part:
Electricity generation plants: both existing facilities and new projects. This includes combined-cycle gas plants, hydroelectric plants, and other dispatchable technologies.
Energy storage systems: batteries and other devices capable of storing energy and releasing it when needed.
Large industrial consumers: companies that commit to reducing their consumption when requested by the system operator. This type of participation is known as demand-side management or active demand response.
Demand aggregators: entities that group together multiple consumers (for example, an energy retailer coordinating thousands of household customers to reduce their consumption in a coordinated way) and participate collectively in auctions.
Selection will be carried out through open and competitive auctions, where participants compete by offering their capacity at the lowest possible price per available megawatt. This ensures that the mechanism remunerates the most efficient participants, limiting costs for the system and, consequently, for consumers.
The mechanism will initially be open to projects located in Spain, with plans to also include neighbouring countries interconnected with the Spanish electricity grid at a later stage, in line with the principles of the EU internal energy market.
The operational management of the mechanism, auctions, monitoring of commitments, and settlement of payments will be the responsibility of Red Eléctrica de España (REE), the operator of the national electricity system.
The capacity mechanism is a tool designed to ensure that the Spanish electricity system can continue operating safely as the energy transition progresses. Its approval by the European Commission marks the beginning of a process with a clear roadmap: the mechanism will be in force from 2026 to 2036, MITECO expects to approve the implementing regulations in the coming weeks, and the sector estimates that the first auctions could take place before the end of 2026. These auctions will also provide a more precise figure on the impact on consumers' electricity bills.
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