Capacity adequacy calculation by considering locational capacity prices

A proper investment mechanism is required in restructured power systems to secure the adequacy of installed capacity by encouraging investments on generation and transmission expansions. In this study, the authors propose a locational capacity price (LCP) model along with multi-level load bidding curves, which reflect the effectiveness of the market-based capacity payment and at the same time, prohibits the capacity withholding and the exercising of market power. The purpose of capacity expansion decision is analysed and compared with three other market design options, that is, energy-only, capacity payment (CP) and installed capacity (ICAP). The case studies show that the proposed LCP method provides proper investment signals in capacity-constrained locations. The proposed LCP method also provides signals to system operators to alleviate transmission congestions economically using proper operation strategies in power systems.