Economics and Design of Capacity Markets for the Power Sector
Capacity markets are a means to assure resource adequacy. The need for a capacity market stems from several market failures the most prominent of which is the absence of a robust demand-side. Limited demand response makes market clearing problematic in times of scarcity. We present the economic motivation for a capacity market, present one specific market design that utilizes the best design features from various resource adequacy approaches analyzed in the literature, and we discuss other instruments to deal with the problems. We then discuss the suitability of the market for Europe and Germany in particular.
|Date of creation:||2012|
|Date of revision:||2012|
|Publication status:||Published in Zeitschrift für Energiewirtschaft, 36:113-134, 2012|
|Contact details of provider:|| Postal: Economics Department, University of Maryland, College Park, MD 20742-7211|
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- Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
- Michael A. Crew & Paul R. Kleindorfer, 1976. "Peak Load Pricing with a Diverse Technology," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 207-231, Spring.
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