Perspectives on the Development of Regional CRMs: Harmonization, Cooperation, and Efficiency

Over the years, Member States have introduced different models of capacity mechanisms (CRMs) in response to national differences in circumstances, the main characteristics of electricity systems, and concerns about system adequacy. These differences are reflected in the design principles, detailed design specificities, and methodologies, causing a lack of cross-CRM compatibility that slows down the progress of direct cross-border participation mandated by EU regulation.

The State aid guidelines and the Electricity Regulation defined key design principles and features in order to avoid inefficiencies or distortions to the level playing field in the Internal Energy Market, including amongst others cross-border participation in capacity markets . In 2025, the Clean Industrial Deal State Aid Framework (“CISAF”) defined specific features of CRM design that would streamline the State aid approval process, enabling a swifter adoption of CRMs. The level of detail provided in its design features would also foster a degree of harmonisation in CRM design, as Member States seeking a smooth and fast approval process would adopt the CISAF baseline.

Eurelectric, together with Compass Lexecon, published a discussion paper („Towards a regional approach for capacity remuneration mechanisms in Europe“). The purpose of this report is to assess the extent to which, and under what preconditions, enhanced cooperation on adequacy assessments and regional contracting mechanisms could deliver greater benefits in terms of costs and security of supply. The report does not aim to provide a detailed analysis of whether CRMs should be implemented, nor which of their characteristics should be harmonized.

According to the authors, every step towards regional CRMs brings certain benefits. Full implementation of cross-border participation, although complex, can reduce overall costs through increased competition, more accurately reflect the contribution of foreign producers and interconnections to adequacy, and create a level playing field for participation. Harmonizing national CRM models could reduce implementation and participation costs, provided that the models remain tailored to local needs. This would facilitate and increase the effectiveness of cross-border participation, further reducing gaps in adequacy.

Beyond these first steps toward harmonization and integration of models, the transition to regional CRMs can bring even more significant benefits, but only if certain preconditions are met:

The potential benefits of regional CRMs come from the pooling of capacity demand and of procurement across a region. This entails cost reductions through maximising the use of interconnection capacity to reduce total capacity demand, and optimising capacity procurement across the entire region. These benefits depend on the fulfilment of pre-requisites and vary in their amounts with the degrees of interconnectedness and harmonisation. Lastly, wider benefits could arise from the efforts deployed to harmonise CRMs regionally.
The prerequisites towards the efficient implementation of regional CRMs span a range of measures to ensure sufficient coordination and consistency across jurisdictions. Harmonised and/or mutualised qualification processes will be needed to save time and resources for organisers and participants, and inter-TSO agreements and data exchange frameworks will be crucial to foster operational coordination.

However, the implementation of regional CRMs faces significant technical, operational, and political challenges, especially to ensure the abovementioned prerequisites are met:

The main technical challenge is to strike the right balance between harmonizing CRM projects so that they become sufficiently compatible, while at the same time responding to local needs and specificities. CISAF provides a useful basis, but there will remain differences and technical details that can only be resolved by Member States in conjunction with regulatory authorities, transmission system operators, and market participants. Furthermore, the possibility of introducing investment signals at national or regional level should be retained where necessary. While this is fully compatible with regional CRMs, it may add complexity to the design of an effective regional mechanism.
Operational challenges include the need to coordinate CRM activities in advance and overcome politically sensitive issues related to reliability—specifically, how the mechanism should respond to simultaneous shortage events while maintaining the functioning of short-term electricity markets. In addition, at the at the intersection between the operational and the political lies the issue of cost allocation, which creates additional challenges. The potential uneven distribution of benefits from regional CRMs requires prior cost-sharing agreements to avoid free-rider concerns and ensure consistency between contractual commitments, costs, and security of supply benefits.
The essence of the political challenges lies in building and maintaining the will to place regional integration above local particularities, so that the relevant benefits can be realized and trust between member states can be strengthened. Compromises in design and policy will be needed to achieve sufficient compatibility, align systemic needs, address governance challenges, and coordinate state aid notification processes in relation to CRM. The definition of regions can be a sensitive issue, both politically and practically, and it is important to take into account the benefits of integrating existing structures, such as regional coordination centers.

Given the challenges involved in this process, it is essential to ensure that the benefits of regional CRMs outweigh the costs of overcoming them. However, the implementation of regional CRMs will not happen overnight and will have to remain a voluntary process. Gradual steps can be taken to move towards regional approaches.

Different levels of regional options for CRM coordination

In practice, the following short-term, low-risk actions taken now could kick-start a regional approach to CRM:

Continue the improvement of national CRMs, including the effective implementation of direct cross-border participation of foreign capacity as mandated by EU regulation;
Establish a structured process, with the involvement of Member States, regulators, system operators and market participants, for exchange of best practices with implementation of the legal obligation to include cross-border participation;
Harmonise national CRMs to the extent possible while still addressing local needs and allowing for different national preferences for adequacy standards, for example by leveraging the principles of the CISAF model; this could reduce substantially costs for market participants, TSOs and regulators.;
Deliver on the prerequisites to make regional CRMs implementation possible and efficient. This includes design harmonisation but also the necessary policy and operational alignments, as well as establishing the coordination mechanisms enabling this practical implementation;
Start with voluntary, small-scale initiatives towards regional CRMs, such as bilateral projects;
Strengthen regional cooperation on resource adequacy assessments.