New Study by Aurora Energy Research: Designing Capacity Markets for the Energy Transition:
04 November 2025
How to Trigger New Investments in Firm & Flexible Capacity
A new study by Aurora Energy Research highlights a pressing challenge for Europe’s electricity system: as coal is phased out and renewable generation grows, flexible and reliable capacity is critical. Capacity markets (CMs) play a key role in supporting investment, yet recent trends show a decline in gas-fired capacity awards due to restrictive design rules and competition from batteries. Without well-designed CMs, Europe risks underinvesting in flexible, dispatchable power – especially gas and engine-based plants – which are essential to balance variable renewables and peak demand.
Engine power plants – including gas and hydrogen units – are uniquely suited to meet Europe’s needs. Their fast-ramping capabilities address short peaks, seasonal variations, and prolonged scarcity; providing long-duration reliability that batteries cannot. Aurora Energy Research’s study shows that carefully designed CMs (featuring realistic price caps, accurate derating factors, multi-year contracts, and locational incentives) can preserve investment in these plants and deploy them where they add the most value to the grid.
The stakes are high. Overlooking engine power plants risks structural gaps in flexible capacity and vulnerability to price spikes or seasonal shortages. Aurora Energy Research’s findings makes it clear that inclusive, balanced capacity markets are essential for Europe to maintain security of supply, integrate renewables, and achieve a resilient, low-carbon electricity system.
