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A Survey of Capacity Mechanisms: Lessons for the Swedish Electricity Market

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  • Pär Holmberg
  • Thomas TangerÃ¥s

Abstract

Many electricity markets use capacity mechanisms to support producers. Capacity payments can mitigate imperfections associated with “missing money†in the spot market and solve transitory capacity shortages caused by investment cycles, regulatory changes, or technology shifts. We discuss capacity mechanisms used in electricity markets around the world. We argue that correctly designed strategic reserves are likely to be more efficient than market-wide capacity mechanisms in jurisdictions that rely on substantial amounts of variable renewable energy and hydro power for electricity supply, such as Sweden.

Suggested Citation

  • Pär Holmberg & Thomas TangerÃ¥s, 2023. "A Survey of Capacity Mechanisms: Lessons for the Swedish Electricity Market," The Energy Journal, , vol. 44(6), pages 275-304, November.
    • Handle: RePEc:sae:enejou:v:44:y:2023:i:6:p:275-304
    DOI: 10.5547/01956574.44.6.phol
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