Generation Adequacy via Call Options Obligations: Safe Passage to the Promised Land

In contrast to the controversial LICAP, the authorʹs plan relies on standard hedging instruments that a mature energy-only market can support without regulatory intervention. Unlike payments for an artificial capacity product, for which there is no natural demand, energy call options provide intrinsic value to customers, since the generators who are paid for such options must pay back any windfall profits. This amounts to a risk trading arrangement where the consumers assume some of the investment risk, in exchange for reducing their price risk.