TY - JOUR
T1 - An analysis of a forward capacity market with long-term contracts
AU - Bhagwat, Pradyumna C.
AU - Marcheselli, Anna
AU - Richstein, Jörn C.
AU - Chappin, Emile J.L.
AU - De Vries, Laurens J.
PY - 2017
Y1 - 2017
N2 - We analyze the effectiveness of a forward capacity market (FCM) with long-term contracts in an electricity market in the presence of a growing share of renewable energy. An agent-based model is used for this analysis. Capacity markets can compensate for the deteriorating incentive to invest in controllable power plants when the share of variable renewable energy sources grows, but may create volatile prices themselves. Capacity markets with long-term contracts have been developed, e.g. in the UK, to stabilize capacity prices. In our analysis, a FCM is effective in providing the required adequacy level and leads to lower cost to consumers and more stable capacity prices, as compared to a yearly capacity market. In case of a demand shock, a FCM may develop an investment cycle, but it still maintains security of supply. Its main effect on the power plant portfolio is more investment in peak plant.
AB - We analyze the effectiveness of a forward capacity market (FCM) with long-term contracts in an electricity market in the presence of a growing share of renewable energy. An agent-based model is used for this analysis. Capacity markets can compensate for the deteriorating incentive to invest in controllable power plants when the share of variable renewable energy sources grows, but may create volatile prices themselves. Capacity markets with long-term contracts have been developed, e.g. in the UK, to stabilize capacity prices. In our analysis, a FCM is effective in providing the required adequacy level and leads to lower cost to consumers and more stable capacity prices, as compared to a yearly capacity market. In case of a demand shock, a FCM may develop an investment cycle, but it still maintains security of supply. Its main effect on the power plant portfolio is more investment in peak plant.
KW - Adequacy policy
KW - Agent-based modeling
KW - Capacity markets
KW - Capacity mechanisms
KW - Electricity market
KW - Security of supply
UR - http://resolver.tudelft.nl/uuid:64b8f701-38b3-423f-b337-a3796dcd8414
UR - http://www.scopus.com/inward/record.url?scp=85032502329&partnerID=8YFLogxK
U2 - 10.1016/j.enpol.2017.09.037
DO - 10.1016/j.enpol.2017.09.037
M3 - Article
AN - SCOPUS:85032502329
SN - 0301-4215
VL - 111
SP - 255
EP - 267
JO - Energy Policy
JF - Energy Policy
ER -