Electricity Capacity Requirements: Who Pays?

Who pays depends on how requirements are designed. If each producer has to provide peak capacity available to a grid operator at a below-spot price, requirements will increase volatility. Requirements based on energy sales rather than capacity act as a tax on base load to subsidize peak, reducing volatility. Finally, if requirements are designed to ensure that extreme peak energy is available without scarcity rents, base load prices remain unaffected but (non-extreme) peak prices increase.