Comparative analysis of the parameters needed to define the security of supply indicator and its application in the implementation of capacity mechanisms in different european countries

Load (VoLL) and Cost of New Entry (CoNE), across European Union Member States lead to heterogeneous Reliability Standards (RS) and consequently different parameters in Capacity

Mechanisms (CMs) procurement. Although the European regulatory framework links the RS to VoLL and CoNE through probabilistic indicators such as Loss of Load Expectation (LoLE), the study finds significant variation in both parameters. CoNE differences are not only driven by financial assumptions such as the Weighted Average Cost of Capital (WACC) and risk premiums, but also by country specific structural factors. VoLL estimates also vary considerably due to methodological differences, including the use of willingness to pay, willingness to accept, and direct cost approaches. These discrepancies translate into different adequacy reliability standards across European countries, influencing capacity procurement, investment signals, and cross border market efficiency.

The paper also validates ACER’s economic framework for defining the Reliability Standard through probabilistic simulations based on a Sequential Monte Carlo approach. The results show that, when VoLL and CoNE are assumed as well defined, the RS closely matches the level of reliability that minimises total system cost, supporting the theoretical methodology.

However, the analysis highlights that national differences in parameter estimation reduce this consistency in practice, leading to inefficiencies such as distorted investment incentives, free riding effects, and suboptimal use of interconnections. Overall, the findings point to the need for greater consistency in parameter estimation and RS implementation to improve efficiency and coordination in the European electricity system.