European regulation tells us that capacity mechanisms must (1) be based on national and European level demand coverage assessments, (2) allocate capacity through a market mechanism and allow for cross-border participation, and (3) implement emission caps that limit the types of capacity that can participate in such capacity markets.

The main motivation of a capacity market sis to be able to finance reliable capacity reserve that is usually inoperative or does not earn enough to survive economically in the current electricity markets.

It is paid per unit of reliable capacity (€/kW/year or equivalent), and not per unit of energy (€/MWh) as is the case with the daily or intraday markets. There is not reason why a capacity payment should impact on the bidding strategy within the daily market, but if the capacity payments reduce the system stress, logic would dictate that there will be fewer unexpected price jumps in the daily market.

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