Capacity Market Mechanism Analyses: a Literature Review

Abstract

This paper focuses on providing an overview of research into different capacity market mechanisms. Beginning with the idea of the energy-only market and the resulting potential concerns of the missing money problem, this survey overviews a variety of studies of different capacity mechanisms, considering issues such as market power, risk attitudes, uncertainty, and pricing rules. Papers of specific interest to particular ISOs/RTOs are also discussed. Previous studies tend to show the advantages of utilizing capacity market mechanisms in lieu of relying solely upon energy-only markets, particularly in the presence of risk-averse investors or the potential exercise of market power. The findings discussed herein indicate the continued importance of studying capacity market mechanisms, particularly as electricity markets continue to evolve with the advent of increasing levels of renewable regeneration and the potential of storage.