Resource-adequacy-based capacity market design

Today´s capacity markets may be viewed as an additional source of income for generators to compensate the money lost due to regulatory imposed caps. Those additional money flows and other design characteristics serve, theoretically, to achieve system adequacy in a market environment. In this paper, we analyze key aspects of today´s capacity market designs. Our main finding is that some design elements help to achieve economic objectives but need to be modified to attain the resource adequacy objective and conversely. Based on the experience to date, we conclude that a key objective of capacity markets is to have resource adequacy by ensuring that there is sufficient installed capacity and its deliverability, i.e., the ability to effectively deliver the capacity from the sources to the existing and future loads. We argue that to reach the adequacy and deliverability objective the capacity market design must explicitly consider them and must ensure no interference with the deployment of market structures. We introduce resource-adequacy-based capacity markets. We discuss the main design elements and illustrate with design examples. Our analysis and insights can lead to the improved capacity market design that meets the resource adequacy assurance by effectively harnessing the forces of the competitive market environment.