As Poland and Germany actively debate resource adequacy and system security, regulators are considering power market reform to meet system needs, including the role that a capacity mechanism might play. As part of the Polish-German conference “Capacity Market–a Solution for the Future?” in Warsaw, Mike Hogan discussed with participants a reform approach that focuses on resource capabilities instead of solely on capacity.

Drawing on RAP’s “Beyond Capacity Markets” concepts, Mr. Hogan outlines a set of market design principles that can be used to assess the suitability of proposals intended to deliver system reliability at low cost. In the context of wholesale power markets, these solutions have generally taken the form of market rules to pay for firm capacity, alongside energy-only prices. A closer look at the new reliability challenges associated with meeting Europe’s decarbonisation targets suggests that the power system will need resources capable of rapidly changing output or flexing demand frequently and continuously around the energy availability from rising shares of variable renewable resources, e.g. wind and solar.

The conference, organized by the Center for International Relations in cooperation with the Konrad-Adenauer-Stiftung Office in Poland, offered a platform for the exchange of views on the merits of capacity markets.