Chapter 9 - Resource Adequacy: Alternate Perspectives and Divergent Paths

Abstract

This chapter discusses concerns regarding resource adequacy. It presents the evolution of installed capacity markets in the United States. It proposes market alternatives to capacity mechanisms. It also discusses energy-only resource adequacy mechanisms with a focus on the experience in Electric Reliability Council of Texas (ERCOT). It presents a potential transitional mechanism based on energy-only markets with contracting obligations. It reveals a selected historical account of resource adequacy mechanisms throughout the world with a focus on developments in the United States, where the capacity framework has been going through substantial evolution and policy debate in multiple markets under the Federal Energy Regulatory Commission (FERC) jurisdiction for almost 10 years. It also examines the reconfirmation of an energy-only framework adopted in ERCOT, in part because of the concern that the evolving capacity framework in other US markets was not consistent with ERCOT's deregulated wholesale and retail markets. It shows that the slow and incomplete transformation of wholesale electricity markets have limited the options that policymakers have had available in creating sustainable resource adequacy mechanisms in the United States. Capacity mechanisms in the United States have evolved in part to overcome shortcomings in transmission construction, lack of adequate demand response programs, and policies that restrict the ability of new generation to interconnect with the transmission grid. The authors contend that these shortcomings are a direct consequence of the fragmented oversight of electricity markets in the United States.