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Incentive or impediment? The impact of capacity mechanisms on storage plants

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Listed:
  • Katrin Schmitz
  • Bjarne Steffen
  • Christoph Weber

Abstract

Capacity remuneration mechanisms are a widespread instrument to foster investment. The growing interest in electricity storage raises the question how these mechanisms interact with storage plants. Using a stylized capacity planning model, we demonstrate that an exclusion of storage plants from capacity mechanisms leads to welfare losses. Even if storages are not explicitly excluded, the setup of capacity mechanisms can discriminate storage implicitly we therefore discuss typical mechanism design parameters and their impact on storage plants. Three case studies describe the actual situation of storage plants in the PJM system, Ireland and Spain. Finally the findings are summarized to general principles for storage-compatible capacity mechanisms.

Suggested Citation

  • Katrin Schmitz & Bjarne Steffen & Christoph Weber, 2013. "Incentive or impediment? The impact of capacity mechanisms on storage plants," RSCAS Working Papers 2013/46, European University Institute.
    • Handle: RePEc:rsc:rsceui:2013/46
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    References listed on IDEAS

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    Cited by:

    1. Fraunholz, Christoph & Keles, Dogan & Fichtner, Wolf, 2021. "On the role of electricity storage in capacity remuneration mechanisms," Energy Policy, Elsevier, vol. 149(C).
    2. Fraunholz, Christoph & Keles, Dogan & Fichtner, Wolf, 2019. "On the role of electricity storage in capacity remuneration mechanisms," Working Paper Series in Production and Energy 37, Karlsruhe Institute of Technology (KIT), Institute for Industrial Production (IIP).

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    More about this item

    Keywords

    capacity market; pumped-hydro storage; power plant investment;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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