Capacity markets were introduced in the U.S. in the late 1990s as a means to ensure “resource adequacy” in liberalized electricity markets where generation must be built by merchant investors rather than regulated entities. This paper provides a general introduction to these markets: why they exist, how they function, how well they have performed in…
Tag: Capacity markets
Capacity Market Fundamentals
Electricity capacity markets work in tandem with electricity energy markets to ensure that investors build adequate capacity in line with consumer preferences for reliability. The need for a capacity market stems from several market failures. One particularly notorious problem of electricity markets is low demand flexibility. Most customers are unaware of the real time prices…