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The effectiveness of capacity markets in the presence of a high portfolio share of renewable energy sources

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  • Bhagwat, Pradyumna C.
  • Iychettira, Kaveri K.
  • Richstein, Jörn C.
  • Chappin, Emile J.L.
  • De Vries, Laurens J.

Abstract

The effectiveness of a capacity market is analyzed by simulating three conditions that may cause suboptimal investment in the electricity generation: imperfect information and uncertainty; declining demand shocks resulting in load loss; and a growing share of renewable energy sources in the generation portfolio. Implementation of a capacity market can improve supply adequacy and reduce consumer costs. It mainly leads to more investment in low-cost peak generation units. If the administratively determined reserve margin is high enough, the security of supply is not significantly affected by uncertainties or demand shocks. A capacity market is found to be more effective than a strategic reserve for ensuring reliability.

Suggested Citation

  • Bhagwat, Pradyumna C. & Iychettira, Kaveri K. & Richstein, Jörn C. & Chappin, Emile J.L. & De Vries, Laurens J., 2017. "The effectiveness of capacity markets in the presence of a high portfolio share of renewable energy sources," Utilities Policy, Elsevier, vol. 48(C), pages 76-91.
  • Handle: RePEc:eee:juipol:v:48:y:2017:i:c:p:76-91
    DOI: 10.1016/j.jup.2017.09.003
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