Many electricity markets authorize capacity payments to generators to secure sufficient supply, unintentionally favouring peaking technologies like oil and gas. New approaches are needed to ensure reliability without discouraging investment in low-carbon resources such as solar, wind and nuclear.
Messages for Policy
-
Mechanisms designed to guarantee sufficient electricity supply may have unintended consequences on resource mix.
-
Implementing capacity markets can shift the resource mix away from baseload and variable resources like nuclear and renewables, toward peaking technologies like oil and gas.
-
Regions relying on competitive markets for resource adequacy should work to ensure robust markets for risk-trading instruments.
-
Regions with explicit capacity requirements should consider a range of risks when designing those requirements.
This is a preview of subscription content, access via your institution
Access options
Access Nature and 54 other Nature Portfolio journals
Get Nature+, our best-value online-access subscription
$29.99 / 30 days
cancel any time
Subscribe to this journal
Receive 12 digital issues and online access to articles
$119.00 per year
only $9.92 per issue
Buy this article
- Purchase on Springer Link
- Instant access to full article PDF
Prices may be subject to local taxes which are calculated during checkout
References
Further Reading
Cramton, P., Ockenfels, A. & Stoft, S. Capacity market fundamentals. Econ. Energy Env. Pol. 2, 27–46 (2013). Explains the rationale for and intent behind existing capacity market structures.
D’Aertrycke, G., Ehrenmann, A., Ralph, D. & Smeers, Y. Risk Trading in Capacity Equilibrium Models. Cambridge Working Paper Economics 1757 (University of Cambridge, 2017).Defines several capacity investment models with different assumptions on market power and availability of risk trading mechanisms.
Ferris, M. & Philpott, A. Dynamic risked equilibria (Optimization Online, 2018).Establishes the need for complete markets in risk to achieve efficient outcomes in competitive markets.
Polzin, F., Egli, F., Steffen, B. & Schmidt, T. S. How do policies mobilize private finance for renewable energy?—A systematic review with an investor perspective. Appl. Energy 236, 1249–1268 (2019). Demonstrates that renewable deployment depends not just on expected returns but also on the risk associated with available revenue streams.
Acknowledgements
Views expressed are not necessarily those of the Federal Energy Regulatory Commission. This research was supported, in part, by Northwestern University’s Center for Optimization and Statistical Learning.
Author information
Authors and Affiliations
Corresponding author
Ethics declarations
Competing interests
The authors declare no competing interests.
Rights and permissions
About this article
Cite this article
Mays, J., Morton, D.P. & O’Neill, R.P. Decarbonizing electricity requires re-evaluating capacity mechanisms. Nat Energy 4, 912–913 (2019). https://doi.org/10.1038/s41560-019-0502-3
Published:
Issue Date:
DOI: https://doi.org/10.1038/s41560-019-0502-3