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Capacity Market Design Issues

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Summary:

Capacity Market Design Issues presentation at the Market Surveillance Committee Meeting September 18, 2006

Extract:

Rationale for capacity payment mechanisms and markets Reasons for poor performance of capacity payments mechanisms Lack of incentive for performance of capacity resources Market power in energy market Market power in short-term capacity market Inadequate revenues to fund new investment Are capacity payment mechanisms necessary for resource adequacy? International experience Unique features of California market What is necessary for resource adequacy in California? Fixed-price forward contracting for virtually all energy far in advance of delivery that clear against prices at locations where load is consumed Existing California resource adequacy mechanism consistent with this Capacity payments are redundant if this is the case Why are capacity payments so popular given experience with them? Creating a “capacity payment mechanism” that addresses shortcomings of previous capacity payment mechanisms

Document Locations:

• MSC Meeting 18-Sep-2006