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Journal Article / Electricity

The Effectiveness of Capacity Markets in the Presence of a High Portfolio Share of Renewable Energy Sources

Author(s): BHAGWAT Pradyumna, CHAPPIN Emile J.L., DE VRIES Laurens J., RICHSTEIN Jörn C.

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ABSTRACT

The effectiveness of a capacity market is analyzed by simulating three conditions that may cause suboptimal investment in the electricity generation: imperfect information and uncertainty; declining demand shocks resulting in load loss; and a growing share of renewable energy sources in the generation portfolio. Implementation of a capacity market can improve supply adequacy and reduce consumer costs. It mainly leads to more investment in low-cost peak generation units. If the administratively determined reserve margin is high enough, the security of supply is not significantly affected by uncertainties or demand shocks. A capacity market is found to be more effective than a strategic reserve for ensuring reliability.