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Working paper / Energy

Incentive or Impediment? The Impact of Capacity Mechanisms on Storage Plants

Author(s): SCHMITZ Katrin, STEFFEN Bjarne, WEBER Christoph

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ABSTRACT

Capacity remuneration mechanisms are a widespread instrument to foster investment. The growing interest in electricity storage raises the question how these mechanisms interact with storage plants. Using a stylized capacity planning model, we demonstrate that an exclusion of storage plants from capacity mechanisms leads to welfare losses. Even if storages are not explicitly excluded, the setup of capacity mechanisms can discriminate storage implicitly we therefore discuss typical mechanism design parameters and their impact on storage plants. Three case studies describe the actual situation of storage plants in the PJM system, Ireland and Spain. Finally the findings are summarized to general principles for storage-compatible capacity mechanisms.