23 June 2026

Energy market “Wild West”: European capacity mechanism 2026 state of play

The recent energy price spike has once again highlighted that dependence on burning gas for power is a risky approach. Yet despite the clear energy security imperative to get off gas; since 2025, five European governments have likely awarded an estimated €13.6 billion in capacity market contracts to fossil fuel assets. This brings the overall total allocated to fossil assets via Europe’s capacity markets since 2014 to around €64.7 billion: around 58% of the estimated €110.7 billion total value of the contracts. 

These numbers demonstrate the structural bias of capacity mechanisms towards fossil fossils. This presents a double-blow for energy bill payers. These contracts are paid via levies on energy bills, adding billions in costs for households and businesses. Long-term contracts to gas plants also keep countries locked into volatile fossil fuel markets for longer, and mean that expensive gas continues to set the majority of wholesale electricity prices. 

There is a concerning lack of oversight over Europe’s capacity markets. Our evidence suggests that advancements in Germany, Poland and Italy may violate EU state aid rules; with the schemes manipulated to favour gas power plants. We urge the European Commission to enforce technology neutrality rules to ensure clean flexibility technologies have equal access; and ensure there is robust evidence of the necessity of these subsidies so that they do not reflect political whim or bias modelling assumptions. 

It is particularly important that EU watchdogs address the capacity market “wild west” this year. A number of capacity markets will require EU state aid reapproval in the coming years, as they come up to their 10-year lifespan. At the same time, a number of countries are looking to introduce capacity markets. It would set a truly dangerous precedent should Germany be allowed to move forward with its ‘ad hoc’, gas-bias capacity market plans. 

The clear, viable alternative to a gas-dominated system is a renewables-based approach, replacing the role that gas currently performs to provide flexibility with clean solutions like batteries, demand side response, interconnectors and long-duration energy storage. EU governments should make full use of the current Flexibility Needs Assessments process and introduce ambitious fossil-free flexibility roadmaps off the back of these assessments.

Read our report “Energy market “Wild West”: European capacity mechanism 2026 state of play”.