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EC approves Belgium's electricity capacity market design


Cleared under EU state aid rules

Just in time for October auction

Belgium to phase out nuclear by 2025

The European Commission has approved Belgium's electricity market capacity mechanism under state aid rules, it said in a statement Aug. 27.

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Approval comes after months of EC scrutiny and offers relief to the Belgian government, which plans a first four year ahead capacity auction this October to compensate for the phase-out of nearly 6 GW of existing nuclear capacity by 2025.

"Capacity mechanisms can help to safeguard security of electricity supply to the extent that they are designed in a way that avoids distortions of competition in energy markets," said EC Executive Vice-President Margrethe Vestager.

Approval comes after Belgium decided to introduce certain sustainability requirements for new fossil fuel installations, the EC said.

In September 2020, the EC opened an in-depth investigation to assess whether Belgium's plans to introduce a capacity market were in line with EU state aid rules.

In particular, the EC had concerns at the time over whether the capacity mechanism would be valid within state aid rules on environmental protection and energy.

In May Belgium's Minister of Energy Tinne der Straeten instructed network operator Elia to organize a first four year ahead capacity auction in October this year, with delivery of up to 7.3 GW from Nov. 1, 2025.

Specifications for the "pay-as-bid" auction set a lower capacity target of 6.397 GW, capped at a maximum bid price Eur75/kW/year ($89.97/kW/year).

Depending on an investment threshold, new capacity can be awarded contracts for up to 15 years in duration. All existing capacity contracts will be for one year, mirroring the UK's capacity market.

The Y-4 auction is to be followed by a Y-1 auction in 2024, also for delivery from Nov. 1, 2025, for a deferred volume of 2.531 GW.

The competition is being targeted by a number of new combined cycle gas plant developers. Several, however, are struggling against local opposition, notably Engie's Vilvoorde CCGT project in Flemish Brabant, RWE's Dils Energie's CCGT in Dilsen-Stokkem and Luminus' 230-MW open cycle gas project at Wondelgem in East Flanders.