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The energy transition and the value of Capacity Remuneration Mechanisms

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  • Bonaldo, Cinzia
  • Fontini, Fulvio
  • Moretto, Michele

Abstract

Capacity Remuneration Mechanisms (CRMs) can be introduced in power markets to address market failures and ensure security of supply. However, investment in capacity is a dynamic process that depends on the evolution of prices and costs over time. In this paper, we investigate the value of capacity under a CRM using a stochastic approach. We focus on three possible technologies participating in the market: a Variable Renewable Energy source, a thermal efficient power plant (such as a Combined Cycle one) and a coal-fired power plant. These three types of capacities can be framed within a common theoretical framework with an increasing level of complexity.

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  • Bonaldo, Cinzia & Fontini, Fulvio & Moretto, Michele, 2024. "The energy transition and the value of Capacity Remuneration Mechanisms," Energy Economics, Elsevier, vol. 139(C).
    • Handle: RePEc:eee:eneeco:v:139:y:2024:i:c:s0140988324005905
    DOI: 10.1016/j.eneco.2024.107882
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    Cited by:

    1. Huang, Zhenyu & Liu, Youbo & Li, Kecun & Liu, Jichun & Gao, Hongjun & Qiu, Gao & Shen, Xiaodong & Liu, Junyong, 2023. "Evaluating long-term profile of demand response under different market designs: A comparison of scarcity pricing and capacity auction," Energy, Elsevier, vol. 282(C).
    2. Castellini, Marta & D'Alpaos, Chiara & Fontini, Fulvio & Moretto, Michele, 2025. "Optimal investment in an energy storage system," FEEM Working Papers 349431, Fondazione Eni Enrico Mattei (FEEM).

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    More about this item

    Keywords

    Energy transition; Capacity Remuneration Mechanism; Price cap; Renewable energies; Investment value;
    All these keywords.

    JEL classification:

    • 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
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General

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