Second-Generation Capacity Markets

Todd S. Aagaard; Andrew N. Kleit

doi:10.1017/9781108779159.007

7 - Second-Generation Capacity Markets

Published online by Cambridge University Press: 24 February 2022

Todd S. Aagaard and

Andrew N. Kleit

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Todd S. Aagaard: Affiliation:
Villanova University Charles Widger School of Law
Andrew N. Kleit: Affiliation:
Pennsylvania State University

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Summary

By the mid-2000s, the shortcomings of the first-generation capacity markets had become clear. Each of the three Northeast regional transmission organizations accordingly replaced its first-generation capacity market with a significantly more robust second-generation capacity market. Whereas first-generation capacity auctions merely supplemented the traditional capacity procurement mechanisms of self-supply and bilateral purchases, second-generation capacity auctions reflected a vision of capacity markets as a distinctive policy for sending corrective price signals to incentivize investment in generation. Unfortunately, FERC did not take advantage of this opportunity to consider deeper questions about capacity markets, such as in what circumstances capacity markets are appropriate and how they compare to other available policy options for achieving reliability.

Type: Chapter
Information: Electricity Capacity Markets , pp. 92 - 106

DOI: https://doi.org/10.1017/9781108779159.007 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2022

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