The Italian capacity remuneration mechanism: critical review and open questions

Abstract

Italy is currently implementing a Capacity Remuneration Mechanism (CRM) in a power sector that is paradoxically characterised, at least for the time being, by a significant overcapacity. This article aims at building a critical review of the Italian CRM design. It first presents the Italian context, explaining how the discussion started more than a decade ago and how it evolved since then. Then, it provides an in-depth description and critical analysis of the mechanism under proposal, based on its main design elements, keeping always as a reference the guidelines issued by the European Commission on CRMs. Many valuable lessons can be extracted from the Italian experience to shed light on other similar processes currently under development.