Generation capacity adequacy in the deregulated electricity market environment

Abstract

One of the challenges for power industry restructuring is to maintain sufficient generation installed capacity to meet demand in nowadays and in the future, and the electricity market failure in California has brought this subject to the forefront of extensive debates. This paper initiates a reviews, assessment and discussion on one important issues related to ensuring adequate generation capacity additions under a competitive electricity market environment, including: Can an energy-only market alone lead to sufficient generation capacity? Should prices of electricity be capped or not? Why is capacity payment or capacity market needed? How should the capacity payment be determined? Existing approaches for capacity payments: Relationship between capacity markets and ancillary service markets: Roles of regulatory organizations.