The effectiveness of capacity markets in the presence of a high portfolio share of renewable energy sources

• Published in: Utilities policy Vol. 48; pp. 76 - 91
• Main Authors: Bhagwat, Pradyumna C, Iychettira, Kaveri K, Richstein, Jörn C, Chappin, Emile J.L, Vries, Laurens J. De
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier 01-10-2017; Elsevier Ltd
• Subjects: Adequacy policy; Capacity markets; Security of supply; Capacity markets; Adequacy policy; Security of supply
• ISSN: 0957-1787; 1878-4356
• DOI: 10.1016/j.jup.2017.09.003

The effectiveness of a capacity market is analyzed by simulating three conditions that may cause suboptimal investment in the electricity generation: imperfect information and uncertainty; declining demand shocks resulting in load loss; and a growing share of renewable energy sources in the generation portfolio. Implementation of a capacity market can improve supply adequacy and reduce consumer costs. It mainly leads to more investment in low-cost peak generation units. If the administratively determined reserve margin is high enough, the security of supply is not significantly affected by uncertainties or demand shocks. A capacity market is found to be more effective than a strategic reserve for ensuring reliability.