Ministry of Economic Affairs and Climate Policy Decision: Introduction of a Central Capacity Mechanism with a Focus on CO2 Requirements

The government has opted for a centralized capacity mechanism to ensure security of supply starting in 2028. This is evident from the Letter to Parliament dated June 19 Last year, TenneT recommended in the Supply Security Monitor including the implementation of such a mechanism. The exact design of the mechanism will be further developed in collaboration with the market and grid operators. However, a number of key decisions have already been made.

Energy Storage NL had previously argued for the introduction of a central capacity mechanism in a paper we submitted to Minister van Veldhoven and State Secretary De Bat. In it, we emphasized the importance of a mechanism featuring long-term contracts, fair compensation structures, and a realistic valuation of batteries based on their availability during periods of scarcity. Exemplary countries such as Belgium demonstrate that a technology-neutral mechanism provides a strong incentive for CO2-free technologies such as storage. Furthermore, a key point is that a capacity mechanism steers the system toward a CO2-free electricity system and away from fossil fuels. lock-in prevents.

Letter to Parliament: Security of Electricity Supply

The Ministry of Economic Affairs and Climate Policy (EZK) will introduce a market-wide (or centralized) capacity mechanism. TenneT will serve as the administrator. Starting in 2028, TenneT will hold a number of capacity auctions in which flexible capacity, such as batteries and gas-fired power plants, can bid. This is necessary because the Security of Supply Monitor (June 2026) shows that, starting in 2028, the supply of electricity cannot always be guaranteed. Capacity for such situations will be reserved through these auctions. Assets will also continue to participate in normal market processes, but through an availability fee and a deployment fee, TenneT makes it lucrative for parties to reserve their capacity for critical peak demand moments. The costs of the mechanism—300 to 600 million euros per year—will be passed on to the end user. Without this mechanism, however, the solutions would be even more expensive. TenneT is developing a proposal for funding.

TenneT’s Monitor shows that the grid operator expects that batteries, demand response, and other CO2-free technologies will not initially be able to fully ensure security of supply. They see a significant (albeit diminishing) role for gas-fired power plants in this regard. Under the current EU CO2 guidelines for the mechanism, gas-fired power plants can still easily participate. A point of concern here is that the capacity mechanism does not inadvertently favor fossil lock-in facilitates. This is a real danger, as the Security of Supply Monitor shows: while the business case for batteries is only ‘potentially viable’ starting in 2033, that for gas-fired power plants is ‘very likely viable’ starting in 2030. Without additional measures, it will be difficult for batteries, long-duration energy storage (LDES), and other CO2-free technologies to compete with gas-fired power plants. Given this insight, the extra attention that the Ministry of Economic Affairs and Climate Policy (EZK) says it will give to design choices that promote CO2-free technologies such as storage becomes even more important.

Carefully select design options for the capacity mechanism

In the second half of 2026, the Ministry of Economic Affairs and Climate Policy (EZK) will announce its selection of design options. In the run-up to that decision, the ministry is working with Energy Storage NL, among others, to determine the appropriate structure for this mechanism. Energy Storage NL welcomes the additional focus on CO2-free technologies in the design process, in line with our earlier call. The attention to location incentives and the coordination with congestion measures is also appropriate. In this regard, ESNL would like to raise two additional points in advance that were not mentioned in the letter to Parliament:

1. Realistic de-rating factors. Appropriate derating factors—correction factors applied to the available capacity—are important for energy storage. Base these on actual reliability at critical moments, rather than on total uptime, so that energy storage is not unnecessarily disadvantaged. Otherwise, there is a risk that batteries will receive only a portion of the compensation due to a standard correction factor. Gas-fired power plants can more easily remain available for long periods, whereas batteries must charge and discharge. However, that does not mean that batteries cannot be available when it really matters.
2. A Balanced Incentive for CO2-Free Technologies. The 2026 Security of Supply Monitor shows that the market currently provides a stronger incentive for the business case of gas-fired power plants. At the same time, the government aims to work toward a CO2-free energy system in the long term. Therefore, ensure that a capacity mechanism does not further reinforce this signal, but rather balances it, so as to prevent a fossil fuel lock-in based on security of supply. In neighboring Belgium, this is achieved through a reliability option with a specific rebate for storage. The result is strong growth in CO2-free assets, while maintaining a reliable framework for security of supply.

ESNL views the introduction of the capacity mechanism positively and looks forward to continuing to work with the Ministry of Economic Affairs and Climate Policy (EZK), TenneT, ACM, and the market to establish a fair, reliable, and—in the long term—carbon-free capacity mechanism.