Where does the capacity market money go? Lessons learned from Poland

As broadly understood, capacity markets are the instruments introduced to secure capacity adequacy in power systems. They are usually introduced to ensure sufficient incentives for investors to maintain optimal capacity when the energy-only markets fail. However, although this mechanism should be technologically neutral, it is important to learn how the substantial funds transferred from consumers are allocated. With this in mind, this study analyses capacity auction results and provides evidence-based findings on the spending of capacity market funds. To achieve this research objective, the Polish capacity market is taken as an example of a capacity market introduced in a power system heavily dependent on fossil fuels and undergoing slow decarbonisation. The analysis covers six auctions for the 2021–26 delivery years. The results show that the key beneficiaries are coal units to which, on average, over 67% of the total budget is allocated. They will receive EUR 412–917 million/year in the period analysed. Capacity markets should increase competitiveness and create incentives; however, the evidence from Poland indicates that it mainly supports the existing, high-emission units operating within state-owned companies. Although the study is conducted for Poland, the findings provide sound lessons for other countries considering the introduction of a capacity market.