Published online by Cambridge University Press: 24 February 2022
The supply curve of a capacity market represents the aggregated bids of the suppliers of capacity. Different suppliers’ bids indicate their differing opportunity costs of incurring capacity obligations. Existing suppliers with firm plans to continue operating often bid at a price of zero, indicating that they are price-takers willing to accept a capacity obligation for any positive price. New suppliers and existing suppliers that are considering exiting the market, however, tend to bid at a non-zero price representing the additional revenue – that is, beyond the revenue they expect to earn from the energy and ancillary services markets – they need to receive to be able to operate without losing money.
For bidding to be possible, however, the object of the bidding – the capacity product – must first be defined. Defining the capacity product includes specifying how capacity is to be counted. This has turned out to be quite complicated. Centralized capacity markets are based on the premise that capacity is fungible, which allows a uniform capacity product to be traded in the market. In reality, however, different capacity resources make different contributions to overall system capacity. Factors such as the timing of generation and location of capacity are important. Regional transmission organizations (RTOs) operating capacity markets therefore must constantly balance two competing considerations that together constitute a complexity dilemma – creating a unified market that maximizes competition and minimizes transaction costs, versus creating a market that recognizes the different attributes of capacity resources.
To save this book to your Kindle, first ensure [email protected] is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.
Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.
Find out more about the Kindle Personal Document Service.
To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.
To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.