Capacity Mechanisms for Power System Reliability
Many European governments are looking now at reforming or introducing “capacity mechanisms.” All existing (or proposed) approaches across Europe are based on the “traditional” capacity mechanism/market design which rewards all capacity equally, no matter what its operational capabilities. In the future, however, systems with a high share of variable renewable energy sources (RES) will need firm, dispatchable capacity with flexible capabilities able to meet “net demand” (i.e., the demand for electricity that cannot be met by variable RES) at least cost. Pursuit of the traditional model may extend the life of high carbon, inflexible assets and not adequately encourage investment in the more flexible capacity needed. This is a threat not only to decarbonisation goals but also to ensuring the reliability of the electricity system with a high percentage of RES at least cost. Author Sarah Keay-Bright explains how the traditional approach to capacity mechanism design will fail to ensure reliability at least cost in a high variable RES future, and can work at cross-purposes with carbon reduction goals. She also sets out the principles that should underpin new approaches to ensure continued operation of and new investment in adequate capacity with the right capabilities needed to integrate higher shares of variable RES in the future at least cost.