Forward capacity markets: Maintaining system reliability in Europe

Meeting peak demand is a major concern for grid operators, sometimes amplified by the liberalization of the electricity industry. Peak resources operate during a short period, at a high operating cost, and face difficulties to recover their investments. Sending the proper market signals to trigger long term generation investments in these types of generating units is a critical issue. Different incentivizing approaches have been adopted worldwide to cope with this issue, from a simple administratively-determined capacity payment, to complex but field-proven market designs complying with grid constraints. In France, the so-called law “NOME” (New Organization of the Electricity Market) represents a new step in establishing a fair, transparent and efficient energy market. It also enforces market participants and system operator to design a mechanism for long-term capacity procurement. This paper will introduce the motivation for developing capacity markets and describe an advanced mechanism that has been derived from the Alstom Grid clearing engine currently in operation in North America. An adaptation of this centralized market place to the situation in Europe will be discussed and simulated with realistic dataset representing the market structure of one particular European country.