Cross-provincial capacity pricing for renewables and energy storage under declining capacity credit in China’s southern power grid region

The current capacity-pricing mechanism in the China southern power grid covers only traditional thermal generation and overlooks the declining marginal capacity credit of renewables and energy storage, which may result in distorted price signals and imbalanced regional investment. This study first evaluates the capacity credit of wind, solar, and storage under high-penetration scenarios, comparing average and marginal values. We further introduce an entropic value at risk-based capacity credit model that dynamically focuses on tail-risk periods with high unserved energy, enabling more accurate and risk-adjusted valuation of resources. Building on these insights, we propose a coordinated, cross-regional pricing framework that links capacity payments to each resource’s true marginal contribution. Finally, we develop a system dynamics-based integrated model that incorporates capacity credit, spot-market outcomes, and pricing rules into a time-series simulation to assess the long-term effects on resource deployment and power flows. Using provincial demand projections and wind and photovoltaic generation data from the NASA MERRA-2 dataset in a long-term simulation framework (2025–2050), simulation results demonstrate that a cross-border pricing mechanism combining average and marginal credits substantially reduces over-incentives for resources with steeply declining marginal value and provides more stable investment signals for storage.