Capacity Market and (the Lack of) New Investments: Evidence from Poland

Przemysław Kaszyński,Jacek Kamiński,Krzysztof Zamasz,Grzegorz Kinelski,Aleksandra Komorowska

doi:10.3390/en14237843

Przemysław Kaszyński, Jacek Kamiński + Show 3 more

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https://doi.org/10.3390/en14237843

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Abstract

Capacity remuneration mechanisms operate in many European countries. In 2018, Poland implemented a centralized capacity market to ensure appropriate funding for the existing and new power generation units to improve long-term energy security. One of the declarations made while the mechanism was deployed was its beneficial influence on incentives for investments in new units. In this context, this paper aims to analyze the effects of the capacity mechanism adopted for investments in new power generation units that may be financed under the capacity market mechanism in Poland. The analysis is conducted for four types of capacity market units, the existing, refurbishing, planned, and demand-side response types, and includes the final results of capacity auctions. The results prove that the primary beneficiaries of the capacity market in Poland have been the existing units (including the refurbishing ones) responsible for more than 80% of capacity obligation volumes contracted for 2021–2025. Moreover, during the implementation of the capacity market in Poland, the planned units that signed long-term capacity contracts with a total share of 12% of the whole market were already at the advanced phases of construction, and the investment decisions were made long before the implementation of the capacity market mechanism. Therefore, they were not associated with the financial support from the capacity market. The study indicates that the capacity market did not bring incentives for investments in new power generation units in the investigated period.

Highlights

Capacity remuneration mechanisms (CRMs) are proposed to solve capacity adequacy problems in the power system that have arisen due to the increase in the share of renewable energy sources
Results presented are divided into a general overview and detailed discussion, the former consists of key data on the concluded capacity auctions while the latter presents results related to the types of capacity market units, separately for each auction and at the aggregated level
The main goal of this paper was to analyze the influence of the capacity market deployment on generating real incentives for investing in new power generation units based on the evidence from Poland

Summary

Introduction

Capacity remuneration mechanisms (CRMs) are proposed to solve capacity adequacy problems in the power system that have arisen due to the increase in the share of renewable energy sources. These units have an impact on the merit order effect resulting in a decrease in the revenues of thermal units. CRMs include a broad range of instruments, such as strategic reserve [1], capacity payments, capacity obligations, reliability options, and centralized and decentralized capacity markets [2,3,4]. According to the literature and policymakers, their main goal should be to ensure appropriate investment incentives for power generation units [2,13,17] to secure stable and economically efficient power generation [18,19]

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