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A Survey of Capacity Mechanisms: Lessons for the Swedish Electricity Market

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  • Pär Holmberg
  • Thomas TangerÃ¥s

Abstract

Many electricity markets use capacity mechanisms to support producers. Capacity payments can mitigate imperfections associated with “missing money†in the spot market and solve transitory capacity shortages caused by investment cycles, regulatory changes, or technology shifts. We discuss capacity mechanisms used in electricity markets around the world. We argue that correctly designed strategic reserves are likely to be more efficient than market-wide capacity mechanisms in jurisdictions that rely on substantial amounts of variable renewable energy and hydro power for electricity supply, such as Sweden.

Suggested Citation

  • Pär Holmberg & Thomas TangerÃ¥s, 2023. "A Survey of Capacity Mechanisms: Lessons for the Swedish Electricity Market," The Energy Journal, , vol. 44(6), pages 275-304, November.
    • Handle: RePEc:sae:enejou:v:44:y:2023:i:6:p:275-304
    DOI: 10.5547/01956574.44.6.phol
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    References listed on IDEAS

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    Cited by:

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    4. Abada, Ibrahim & Ehrenmann, Andreas & Smeers, Yves, 2025. "Marginal pricing and the energy crisis: Where should we go?," Energy Economics, Elsevier, vol. 149(C).
    5. Simon Finster & Patrick Loiseau & Simon Mauras & Mathieu Molina & Bary Pradelski, 2025. "Equitable Auctions," Post-Print hal-05225702, HAL.
    6. Wang, Yubao & Zhen, Junjie, 2024. "Regional electricity cooperation model for cost-effective electricity management with an emphasis on economic efficiency," Energy Policy, Elsevier, vol. 195(C).
    7. Biggar, Darryl R. & Hesamzadeh, Mohammad Reza, 2024. "Crises in Texas and Australia: Failures of energy-only markets or unforeseen consequences of price caps?," Energy Economics, Elsevier, vol. 137(C).
    8. Simshauser, Paul, 2025. "Competition vs. coordination: Optimising wind, solar and batteries in renewable energy zones," Energy Economics, Elsevier, vol. 143(C).
    9. Simshauser, Paul & Gohdes, Nicholas, 2025. "Incomplete markets, pumped hydro storage and the role of policy in Australia's national electricity market," Energy Policy, Elsevier, vol. 204(C).

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