Exploring Capacity Markets and Beyond
At the Governmental and Regulatory Affairs Advisory Group Meeting of the Northeast Power Coordinating Council (NPCC) in Boston, Rich Sedano explored ideas for power market reform in light of the challenges posed by integrating increasing amounts of variable renewable power. Existing capacity markets provide investment incentives designed to address resource adequacy, and do not sufficiently account for the flexibility needed at high penetrations of variable renewable resources. In the future, markets will need to value not just capacity, but the optimal mix of capabilities to ensure reliability at least cost.
Drawing on RAP’s Beyond Capacity Markets concept, Mr. Sedano proposed market reforms, such as an apportioned forward capabilities market, aimed at capturing and rewarding the flexible capabilities needed. Apportioned forward capabilities markets pay the market value of firm capacity, and pay more for resources that possess other reliability attributes. They also use sequenced procurement to secure the most flexible (i.e. cycling or ramping) resources first.
As the importance of resource capabilities increases and resource adequacy and system stability become more inseparable, the value of maintaining a capacity market diminishes. Consequently, market design must be evaluated to ensure that long-term investment signals value the capabilities needed to ensure system quality.