How to ensure adequate levels of generation capacity in the newly liberalized energy markets? Twenty years into energy market liberalization, Member States of the European Union (EU) start to question the ability of the so-called ‘energy-only’ markets, where generators are paid only for the energy they produce, to provide appropriate incentives to build new generating capacity in the right quantity, the right location, and based on the right technology. Why is there so little faith in market forces? Is not an optimal level of generation investments something that a liberalized and wellfunctioning market should provide? A reply frequently heard from economists is that, in reality, truly free and competitive energy-only markets do not exist. A number of political/regulatory constraints, such as price caps, or operational barriers, keep prices for wholesale and balancing energy below their efficient levels at times when they should be high, providing insufficient revenues for gas-fired peaking units to recover their capital costs. The increasing intake of subsidized renewable energy into the system likewise depresses wholesale prices and drives higher-cost conventional plants out of business. However, as suggested by the diverging views presented in this book, there is still no consensus as to whether these concerns are valid or not. And the common cure envisaged these days? Even more subsidies. We are witness to a hasty and uncoordinated introduction of so-called capacity remuneration mechanisms (or simply, capacity mechanisms) in a number of European countries. In essence, capacity mechanisms are just another form of state-driven support which compensates generators for their capacity, that is, their availability to produce energy at some point in the future. A more certain and stable stream of revenue for capacity, in addition to revenue from the sale of energy, is supposed to mitigate generators’ investment risk, encouraging them to build new power plants, and also to keep the existing ones in operation. Capacity mechanisms can also remunerate consumers for their commitment to reduce energy consumption at some point in the future. In this case, the mechanism supports investments in demand side response solutions. Capacity mechanisms are thus nothing more than a new regulatory ‘patch’ in the long transition towards a competitive, sustainable, and secure energy market the design of which still remains to be perfected. But is not the cure worse than the disease—assuming there indeed is a disease? Capacity mechanisms may have serious implications for the completion of the European internal electricity market, the Holy Grail pursued since the mid-1990s. In particular, they might hamper cross-border trade and distort competition in the national day-ahead and balancing markets. They might also distort investment signals in the internal market leading to locational over- and/or under-capacity.