Capacity Market and (the Lack of) New Investments: Evidence from Poland

Abstract

Capacity remuneration mechanisms operate in many European countries. In 2018, Poland implemented a centralized capacity market to ensure appropriate funding for the existing and new power generation units to improve long-term energy security. One of the declarations made while the mechanism was deployed was its beneficial influence on incentives for investments in new units. In this context, this paper aims to analyze the effects of the capacity mechanism adopted for investments in new power generation units that may be financed under the capacity market mechanism in Poland. The analysis is conducted for four types of capacity market units, the existing, refurbishing, planned, and demand-side response types, and includes the final results of capacity auctions. The results prove that the primary beneficiaries of the capacity market in Poland have been the existing units (including the refurbishing ones) responsible for more than 80% of capacity obligation volumes contracted for 2021–2025. Moreover, during the implementation of the capacity market in Poland, the planned units that signed long-term capacity contracts with a total share of 12% of the whole market were already at the advanced phases of construction, and the investment decisions were made long before the implementation of the capacity market mechanism. Therefore, they were not associated with the financial support from the capacity market. The study indicates that the capacity market did not bring incentives for investments in new power generation units in the investigated period.