Capacity mechanism in Spain: how to learn from our mistakes
Spain has one last chance to avoid repeating the mistake that has already cost the UK and Poland billions. In this article, AFRY presents the impact that different capacity mechanisms can have on costs for end users.
The challenge
In May 2026, the European Commission approved Spain's capacity mechanism, granting with up to €9 billion until 2036. This mechanism will not remunerate the energy produced, but rather the firm capacity provided by generators and consumers during stress hours. The draft proposal from the Ministry for Ecological Transition and the Demographic Challenge (MITECO), published in 2024, establishes derating factors for each technology, but for new technologies such as batteries, these factors continue to rely on models, not on real-world operational experience.
That is the risk: calibrating them incorrectly can be very costly.
Assessing the Spanish capacity market design: role of duration in storage
The difference between these two scenarios could result in additional costs of €4 billion. The full report is available for download and details, year by year, the cost of failing to anticipate.
Why this matters now
UK and Poland have already gone down this path. Both initially favored short duration storage, but both had to reverse course when operational data showed that these batteries were not providing the expected reliability: in Poland, the derating factor plummeted from 95% to 13% in just two years. The cost of correcting this will be substantial. The UK has had to implement a cap-and-floor system to attract longer-term storage, and Poland has seen its capacity price rise from PLN 224/kW-year to PLN 465/kW-year, reflecting the need for new gas-fired power plants.
Correcting things on the fly is expensive.
Spain can still avoid it. But with the first auction scheduled for the end of this year or the beginning of 2027, the window for calibrating it properly is closing soon.
What AFRY's analysis shows
Focusing solely on the short term can ultimately lead to the same problems we have seen in the UK and Poland. Designing the mechanism with a view on how the system will evolve over the next decade, rather than just the first year of each auction, could reduce the cumulative cost of auctions by up to 62% in the next decade.
Why AFRY?
This analysis is part of our ongoing research into the design of capacity mechanisms, drawing on experience gained in other European countries. Contact us if you would like to learn more.
The question is not whether we will have to correct the mechanism later, but whether we prefer to do it now, or later at a higher cost.
