The need for capacity markets in the deregulated electrical industry-a review

In the past, utilities addressed generation adequacy by having a minimum of installed capacity. System security dictated the carrying of a certain operable capacity in every hour. In the deregulated markets that are evolving around the world, some systems have either or both of installed and operable capacity markets. Others have no explicit market for any sort of capacity at all. This paper examines some issues related to adequacy and security as they are affected by market design. It debates the need for capacity markets to ensure reliability. In markets where such obligations exist, do capacity responsibility and its apportionment to suppliers signal system risk appropriately? The paper examines the pros and cons of ensuring reliability by relying only on the energy and ancillary service markets