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Investment vs. Refurbishment: Examining Capacity Payment Mechanisms Using Stochastic Mixed Complementarity Problems

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  • Muireann à . Lynch
  • Mel T. Devine

Abstract

Capacity remuneration mechanisms exist in many electricity markets. Capacity mechanism designs do not explicitly consider the effects of refurbishment of existing generation units in order to increase their reliability. This paper presents a stochastic mixed complementarity problem to examine the impact of refurbishment on electricity prices and generation investment. Capacity payments are found to increase reliability when refurbishment is not possible, while capacity payments and reliability options yield similar results when refurbishment is possible. Final costs to consumers are similar under the two mechanisms with the exception of the initial case of overcapacity.

Suggested Citation

  • Muireann à . Lynch & Mel T. Devine, 2017. "Investment vs. Refurbishment: Examining Capacity Payment Mechanisms Using Stochastic Mixed Complementarity Problems," The Energy Journal, , vol. 38(2), pages 27-52, March.
    • Handle: RePEc:sae:enejou:v:38:y:2017:i:2:p:27-52
    DOI: 10.5547/01956574.38.2.mlyn
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    References listed on IDEAS

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