Reliability Compliant Market: Incentives for Long-Term Transmission and Generation Capacity Adequacy

Electricity restructuring is centered on economic efficiency as well as grid reliability for both short and long terms. Successful markets are characterized with the common key elements. The key market elements include: locational marginal pricing (LMP), financial transmission right (FTR) and co- optimized energy and ancillary service market. As critical components of a successful market design, risk hedging mechanisms are presented including multi-settlement scheme, virtual bidding and bilateral contracts. Market mechanisms for long-term transmission and generation capacity adequacy are under development in the US several US markets and will be discussed in the paper. Examples are used to demonstrate the workings of the key market elements.