Marginal vs. average effective load carrying capability: How should capacity markets deal with alternative generation forms?

Abstract

Measuring the contribution of variable and supply-limited generation resources to grid reliability is becoming increasingly relevant as such resources expand their role in the electricity grid. Effective Load Carrying Capability (ELCC) has arisen as an approach to address these challenges. ELCC measures a resource's contribution to reliability based on the load that can be satisfied by adding the resource to the grid. ELCC advances resource accreditation by better reflecting the realities of how supply alternatives contribute to system reliability. It is not, however, a panacea. Implementing an ELCC approach requires challenging judgment calls that, because of the financial consequences for supply resources, are sure to generate controversy. The two primary methods for implementing ELCC, marginal and average, cause market inefficiencies. We compare the two methods using an economic model. The results of our model suggest that, although both methods result in inefficiencies under assumptions consistent with existing market conditions, the inefficiencies under a marginal approach are smaller than the inefficiencies under an average approach. Fortunately, there appear to be ways of addressing the adverse consequences of each method.