Chasing Adequacy: Selected Lessons from US (and Australian) Experience with Capacity Remuneration Mechanisms
In Europe, as in many other regions, there is much debate about what constitutes an “adequate” supply of electricity and what approach should be taken to ensure supply security. At a meeting of the Centre for European Policy Studies (CEPS), Mike Hogan encouraged regulators to consider the fundamental questions. What is reliability worth, and how much does greater reliability cost? How much reserve is really needed, and who determines this? What mix of operational capacities do your resources possess?The current focus on capacity remuneration mechanisms (CRM) in Europe is proving to be less successful at addressing resource adequacy than anticipated. Drawing on experience from the U.S. and Australia, Mr. Hogan highlighted the value of demand-side resources, centralized market interventions, and rolling limited-term commitments. He cautioned that CRMs, by design, tend to over-procure supply, and place too much value on generation and not enough on other, larger reliability issues such as flexibility.