Europe’s new €9 billion bill for idle power

Europe's green energy transition has a hidden cost: paying power plants, batteries, and factories not to generate electricity, but to promise they can if needed. That promise is now being priced into household bills across the continent.

On 29 May, the European Commission approved Spain's capacity mechanism, a system that pays energy providers to guarantee they'll be available when the grid is under stress. The price tag: €9 billion over ten years (European Commission, El País). Days later, Portugal announced plans for its own version (Observador). The Netherlands, Germany, and Italy are heading the same way. A new line item is being added to European electricity bills.

Paying for readiness, not power

In the normal electricity market, a generator earns money by selling the power it produces. A capacity payment rewards something different: the commitment to be available when the system runs short. A gas plant that runs 200 hours a year, a battery that discharges during evening peaks, a factory that agrees to cut its consumption on command can all be paid simply for standing by.

Solar and wind drive down average wholesale prices, but they can't guarantee output during peak demand, long windless stretches, or heatwaves that max out air conditioning. Plants that fill those gaps may run so rarely that electricity sales alone don't cover their costs. Without a separate payment, they close. The grid loses its safety margin.

Spain's scheme works through competitive auctions. Red Eléctrica, the national grid operator, sets how much reliable capacity the system needs. Generators, batteries, and companies that coordinate factories willing to power down on demand all bid the price they require per megawatt of standby capacity. Winners get paid over the contract period but face penalties if they fail to deliver when called (Europa Press, Eureporter).

From Iberia outward

Portugal points to a national grid-security assessment showing that available capacity needs reinforcement as the economy electrifies and new loads from electric vehicles and industry grow (Executive Digest). Energy minister Maria da Graça Carvalho promises "the lowest possible cost for families and companies," but the design, budget, and cost-recovery model remain unpublished (Observador).

The pattern extends beyond Iberia. In the Netherlands, grid operator TenneT warns that reliability standards could be breached from 2030 as demand rises and older plants that can be switched on at will retire (Netbeheer Nederland). Germany and Italy are building or expanding their own versions.

What accelerated all of this is a legal change. The EU's 2024 electricity-market reform (Regulation 2024/1747) made capacity mechanisms a permanent part of the EU market architecture. Earlier rules had treated them as temporary, last-resort measures. Spain was the first approval under the new framework. Every application that follows, including Portugal's, now takes an easier path.

Who gains, who pays

Consumers pay. In Spain, capacity payments become a regulated charge on monthly electricity bills. How much per household is unclear; Portugal has disclosed no estimate at all.

The winners depend on auction design. Gas plants, batteries, hydro, and companies managing industrial demand cuts are all nominally eligible. But across Europe's existing capacity markets, the bulk of payments have gone to thermal generators, the plants that guarantee firm output for hours or days on end. Battery storage is growing fast but cannot yet cover multi-day shortage events. That gives gas a structural edge in auctions designed around worst-case scenarios. Spain's gas lobby is already pushing for "reasonable remuneration" of gas infrastructure through 2032 (Cinco Días).

Portugal's mechanism faces its real test not in Lisbon but in Brussels, where the Commission will check whether the cost is proportionate to the risk. If governments price this insurance wrong, consumers will pay for reliability they already had, while fossil backup collects a lifeline labelled as grid security.