Capacity market design considering comprehensive revenue and investment decision of generations

Abstract

The reasonable design of the capacity market parameters in power systems is an essential problem. Being a key element for the capacity market design, an appropriate demand curve of capacity must stimulate sufficient but not excessive capacity investments to satisfy system adequacy requirements. This paper proposes a framework to determine the parameter settings of the demand curve in the capacity market by comprehensively evaluating the investment decision of generations. The joint revenues of generators in both capacity market and energy market are calculated to assess the effect of market for incentivizing investment. The mutual effects of the revenues from capacity and energy markets are modeled using the prospect theory. An investment decision model of generators is developed based on the joint revenues and total costs. The performance of the capacity market is evaluated through dynamic simulation of generator capacity investments. An algorithm is presented to determine the desired parameter settings of capacity market that meet the capacity stimulation requirements without causing redundant capacity. A case study is used to verify the effectiveness of the proposed framework.