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

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  • Katrin Schmitz
  • Bjarne Steffen
  • Christoph Weber
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    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.

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    File URL: http://cadmus.eui.eu/bitstream/handle/1814/27414/RSCAS_2013_46.pdf?sequence=1
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    File URL: http://hdl.handle.net/1814/27414
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    Bibliographic Info

    Paper provided by European University Institute in its series RSCAS Working Papers with number 2013/46.

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    Date of creation: Jun 2013
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    Handle: RePEc:rsc:rsceui:2013/46

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    Keywords: capacity market; pumped-hydro storage; power plant investment;

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    1. Finon, Dominique & Meunier, Guy & Pignon, Virginie, 2008. "The social efficiency of long-term capacity reserve mechanisms," Utilities Policy, Elsevier, vol. 16(3), pages 202-214, September.
    2. Joskow, Paul & Tirole, Jean, 2004. "Reliability and Competitive Electricity Markets," IDEI Working Papers 310, Institut d'Économie Industrielle (IDEI), Toulouse.
    3. Paul L. Joskow, 2006. "Competitive Electricity Markets And Investment In New Generating Capacity," Working Papers 0609, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
    4. Peter Cramton & Axel Ockenfels, 2012. "Economics and Design of Capacity Markets for the Power Sector," Papers of Peter Cramton 12cocap, University of Maryland, Department of Economics - Peter Cramton, revised 2012.
    5. Batlle, C. & Rodilla, P., 2010. "A critical assessment of the different approaches aimed to secure electricity generation supply," Energy Policy, Elsevier, vol. 38(11), pages 7169-7179, November.
    6. Steffen, Bjarne, 2012. "Prospects for pumped-hydro storage in Germany," Energy Policy, Elsevier, vol. 45(C), pages 420-429.
    7. Deane, J.P. & Ó Gallachóir, B.P. & McKeogh, E.J., 2010. "Techno-economic review of existing and new pumped hydro energy storage plant," Renewable and Sustainable Energy Reviews, Elsevier, vol. 14(4), pages 1293-1302, May.
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