Research Paper: Implementation of Scarcity Pricing Mechanisms in Select European Union Countries

As power systems transition toward higher renewable energy source (RES) penetration and increased flexibility needs, ensuring robust price signals for adequacy becomes increasingly important. The paper provides a comparative assessment of national approaches and evaluates their effectiveness in addressing the missing-money challenge.

Main insights:

• Scarcity pricing can enhance long-term adequacy and flexibility incentives when appropriately designed.
• Implementation models vary considerably across European jurisdictions.
• Aligning price caps with the Value of Lost Load (VoLL) is essential to maintain credible scarcity signals.
• In several nations, scarcity pricing functions concurrently with capacity mechanisms as a component of a comprehensive adequacy framework.