Incentive or impediment? The impact of capacity mechanisms on storage plants

Katrin Schmitz, Bjarne Steffen and Christoph Weber

No 2013/46, RSCAS Working Papers from European University Institute

Abstract: Capacity remuneration mechanisms are a widespread instrument to foster investment. The growing interest in electricity storage raises the question how these mechanisms interact with storage plants. Using a stylized capacity planning model, we demonstrate that an exclusion of storage plants from capacity mechanisms leads to welfare losses. Even if storages are not explicitly excluded, the setup of capacity mechanisms can discriminate storage implicitly we therefore discuss typical mechanism design parameters and their impact on storage plants. Three case studies describe the actual situation of storage plants in the PJM system, Ireland and Spain. Finally the findings are summarized to general principles for storage-compatible capacity mechanisms.

Keywords: capacity market; pumped-hydro storage; power plant investment (search for similar items in EconPapers)
JEL-codes: L51 L52 L94 Q41 Q42 Q48 (search for similar items in EconPapers)
Date: 2013-06
New Economics Papers: this item is included in nep-ene and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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