Capacity Market Design

Todd S. Aagaard; Andrew N. Kleit

doi:10.1017/9781108779159.010

10 - Capacity Market Design

Published online by Cambridge University Press: 24 February 2022

Todd S. Aagaard and

Andrew N. Kleit

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Todd S. Aagaard: Affiliation:
Villanova University Charles Widger School of Law
Andrew N. Kleit: Affiliation:
Pennsylvania State University

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Summary

Even after system operators have defined supply and demand for their capacity markets, important questions of market design remain. Most centralized capacity markets such as those of the three Northeast regional transmission organizations (RTOs) operate their markets primarily through auctions. RTOs must choose an auction format and a method for determining the market-clearing price and quantity in the auction. In addition to operating a base auction, RTOs also have created smaller incremental auctions to allow sellers and buyers of capacity to adjust their capacity holdings at other times. For those load-serving entities that own or procure their own capacity outside of the auctions, the RTOs offer opportunities for opting out of capacity auctions and supplying their own capacity needs directly. Finally, RTOs have created incentive structures to encourage capacity owners to fulfill their capacity obligations and to penalize those who do not.

Many market design choices involve details and nuanced differences. These details matter. The decisions underlying market design features carry important consequences for the outcomes and performance of capacity markets.

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Type: Chapter
Information: Electricity Capacity Markets , pp. 165 - 189

DOI: https://doi.org/10.1017/9781108779159.010 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2022

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