The Future of Capacity Markets
During this Electricity in Transition discussion organized by the Center for Strategic & International Studies, Michael Hogan discusses the changes needed in wholesale power markets to maintain resource adequacy at least cost. These include administrative interventions targeted at the ancillary and energy services markets with a parallel phasing out of capacity mechanisms.
Other panelists covered the basic theory behind capacity markets, discussed the pathways different jurisdictions have pursued, and highlighted the challenges perceived by states and market participants. Panelists also focused on how resource adequacy mechanisms may need to change to respond to the changing generation mix, the goal of decarbonization, and the integration of distributed energy resources.
Ensuring that there is adequate generation to meet established reliability standards is an imperative task for regulators. In organized wholesale markets, however, how exactly to ensure medium- to long-term resource adequacy continues to be the subject of debate and experimentation. Different jurisdictions have adopted different responses, with several markets mandating the procurement of capacity through organized capacity markets. Although the existence and operation of the capacity markets varies across jurisdictions, persistent concerns remain about the functioning and adequacy of capacity markets to ensure long-term reliability—especially in light of a rapidly changing grid with higher penetration of variable renewables and distributed energy resources.