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Incentive or impediment? The impact of capacity mechanisms on storage plants

  • Katrin Schmitz
  • Bjarne Steffen
  • Christoph Weber
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    Capacity remuneration mechanisms are a widespread instrument to foster investment. The growing interest in electricity storage raises the question how these mechanisms interact with storage plants. Using a stylized capacity planning model, we demonstrate that an exclusion of storage plants from capacity mechanisms leads to welfare losses. Even if storages are not explicitly excluded, the setup of capacity mechanisms can discriminate storage implicitly we therefore discuss typical mechanism design parameters and their impact on storage plants. Three case studies describe the actual situation of storage plants in the PJM system, Ireland and Spain. Finally the findings are summarized to general principles for storage-compatible capacity mechanisms.

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    File URL: http://cadmus.eui.eu/bitstream/handle/1814/27414/RSCAS_2013_46.pdf?sequence=1
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    File URL: http://hdl.handle.net/1814/27414
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    Paper provided by European University Institute in its series RSCAS Working Papers with number 2013/46.

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    Date of creation: Jun 2013
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    Handle: RePEc:rsc:rsceui:2013/46
    Contact details of provider: Postal: Convento, Via delle Fontanelle, 19, 50014 San Domenico di Fiesole (FI) Italy
    Web page: http://www.eui.eu/RSCAS/

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    1. Joskow, Paul L & Tirole, Jean, 2007. "Reliability and Competitive Electricity Markets," CEPR Discussion Papers 6121, C.E.P.R. Discussion Papers.
    2. Peter Cramton & Axel Ockenfels, 2012. "Economics and Design of Capacity Markets for the Power Sector," Papers of Peter Cramton 12cocap, University of Maryland, Department of Economics - Peter Cramton, revised 2012.
    3. Finon, Dominique & Meunier, Guy & Pignon, Virginie, 2008. "The social efficiency of long-term capacity reserve mechanisms," Utilities Policy, Elsevier, vol. 16(3), pages 202-214, September.
    4. Steffen, Bjarne, 2012. "Prospects for pumped-hydro storage in Germany," Energy Policy, Elsevier, vol. 45(C), pages 420-429.
    5. Deane, J.P. & Ó Gallachóir, B.P. & McKeogh, E.J., 2010. "Techno-economic review of existing and new pumped hydro energy storage plant," Renewable and Sustainable Energy Reviews, Elsevier, vol. 14(4), pages 1293-1302, May.
    6. Batlle, C. & Rodilla, P., 2010. "A critical assessment of the different approaches aimed to secure electricity generation supply," Energy Policy, Elsevier, vol. 38(11), pages 7169-7179, November.
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