This paper provides an overview of the current regulatory environment for capacity mechanisms with a particular focus on State aid and the European Commission's ongoing sector inquiry. • From a regulatory perspective, after a period with limited policy initiatives, the European Commission is paving the way to adopt new and far-reaching regulation in the electricity sector that will affect capacity mechanisms. • From a State aid perspective, the European Commission has developed a stricter stance when assessing the compatibility of capacity mechanisms with EU State aid rules. • Security of supply and generation adequacy will be an important item on the European Commission's agenda in the near future and the outcomes of the sector inquiry, once finalised, will feed into further enforcement and regulatory initiatives.

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