Economic Evaluation of the Belgian Capacity Remuneration Mechanism: A Simulation-Based Assessment of Reliability Options under Different Scenarios for 2030

Details

Supervisors

Willems, Bert

Faculty

Louvain School of Management

Degree label

Master [120] en sciences de gestion, à finalité spécialisée

Abstract

enOver the past decade, Capacity Remuneration Mechanisms (CRMs) have been introduced in several countries, including Belgium, to ensure resource adequacy in electricity markets. However, the literature continues to debate the economic efficiency and calibration of CRMs, particularly regarding risks of over-procurement, coordination issues between national mechanisms and the influence of regulatory design choices on market outcomes. This thesis contributes to this discussion by evaluating one specific financial dimension of the Belgian CRM for the 2030 delivery horizon: the relationship between capacity remuneration and the repayment obligations associated with reliability options. Future electricity price trajectories are simulated under alternative scenarios using a Monte Carlo framework to estimate expected reliability option repayments and evaluate the resulting payment gap across scenarios. The results suggest that reliability option repayments remain below capacity remuneration in most scenarios and only exceed it under severe market stress conditions. These findings indicate that such repayments are strongly influenced by uncertainty in future electricity prices and appear more sensitive to persistent scarcity episodes than to ordinary market fluctuations. The alternative scenarios simulated within the scope of this study, do not suggest an under-remuneration through the CRM mechanism itself. The results do not allow to draw definitive conclusions concerning whether the Belgian CRM over-remunerates capacity providers overall, since broader economic outcomes also depend on investment incentives, technology-specific costs and additional revenue streams beyond the scope of this analysis. At the same time, the results suggest that increasing renewable penetration may reinforce adequacy and flexibility challenges rather than reduce the relevance of capacity mechanisms. In this context, the key issue may become less whether CRMs are needed, than which types of flexible resources they incentivise or support.