Dynamic analysis of various investment incentives and regional capacity assignment in Iranian electricity market

Abstract

This paper develops a system dynamics model to analyze the impacts of different kinds of capacity payment as investment incentive mechanisms in Iranian electricity market. Since it is aimed that the incurred capital and operating costs of generation technologies be recovered in Iranian electricity pool, the noncompetitive capacity payment mechanism has been introduced for this purpose in order to encourage new investments in electric power generation system. In the current mechanism, the capacity payments are designated to the generating units in the whole country electricity market. An annual base value of capacity payment is proposed based on recovering the capital cost of a benchmark generation technology. This value is altered according to the operational reserve in the day-ahead electricity market. This supporting policy is simulated and analyzed in the proposed dynamic framework in order to track the trend of new investments in the Iranian electricity market. The feasibility study of implementing the regional capacity assignment is the main focus of this paper. Different possible regulating policies such as floating rates for capacity payment and electricity price cap, the multiple capacity payments to various technologies, and the regional electricity market with territorial capacity allocation are examined in order to investigate the consequences and performances of different decisions and policies in the capacity investment of Iranian electricity market.