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A model-based analysis on the impact of explicit penalty schemes in capacity mechanisms

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  • Mastropietro, Paolo
  • Herrero, Ignacio
  • Rodilla, Pablo
  • Batlle, Carlos

Abstract

A major aim of Capacity Remuneration Mechanisms (CRMs) is to lead the power system expansion towards the level of security of supply that the regulator considers adequate. When introducing a capacity mechanism, therefore, regulators must ensure that the resulting mix will actually provide the firmness pursued, in such a way that both the generation and the demand resources awarded with the capacity remuneration actually perform as expected when the system needs them. In order to achieve this goal, some experts stressed the importance of including performance incentives in the CRM design. However, first capacity mechanisms (implemented mainly in the American continent) did not pay enough attention to this aspect. Two decades of operation have evidenced the need for performance incentives and these instruments are, at this writing, at the centre of the regulatory discussion.

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  • Mastropietro, Paolo & Herrero, Ignacio & Rodilla, Pablo & Batlle, Carlos, 2016. "A model-based analysis on the impact of explicit penalty schemes in capacity mechanisms," Applied Energy, Elsevier, vol. 168(C), pages 406-417.
    • Handle: RePEc:eee:appene:v:168:y:2016:i:c:p:406-417
    DOI: 10.1016/j.apenergy.2016.01.108
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    8. Kozlova, Mariia & Huhta, Kaisa & Lohrmann, Alena, 2023. "The interface between support schemes for renewable energy and security of supply: Reviewing capacity mechanisms and support schemes for renewable energy in Europe," Energy Policy, Elsevier, vol. 181(C).
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    12. Bhagwat, Pradyumna C. & Iychettira, Kaveri K. & Richstein, Jörn C. & Chappin, Emile J.L. & Vries, Laurens J. De, 2017. "The effectiveness of capacity markets in the presence of a high portfolio share of renewable energy sources," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 48, pages 76-91.
    13. Khan, Agha Salman M. & Verzijlbergh, Remco A. & Sakinci, Ozgur Can & De Vries, Laurens J., 2018. "How do demand response and electrical energy storage affect (the need for) a capacity market?," Applied Energy, Elsevier, vol. 214(C), pages 39-62.
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    17. Bublitz, Andreas & Keles, Dogan & Zimmermann, Florian & Fraunholz, Christoph & Fichtner, Wolf, 2019. "A survey on electricity market design: Insights from theory and real-world implementations of capacity remuneration mechanisms," Energy Economics, Elsevier, vol. 80(C), pages 1059-1078.

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