The energy transition and the value of Capacity Remuneration Mechanisms

Cinzia Bonaldo, Fulvio Fontini and Michele Moretto

Energy Economics, 2024, vol. 139, issue C

Abstract: Capacity Remuneration Mechanisms (CRMs) can be introduced in power markets to address market failures and ensure security of supply. However, investment in capacity is a dynamic process that depends on the evolution of prices and costs over time. In this paper, we investigate the value of capacity under a CRM using a stochastic approach. We focus on three possible technologies participating in the market: a Variable Renewable Energy source, a thermal efficient power plant (such as a Combined Cycle one) and a coal-fired power plant. These three types of capacities can be framed within a common theoretical framework with an increasing level of complexity.

Keywords: Energy transition; Capacity Remuneration Mechanism; Price cap; Renewable energies; Investment value (search for similar items in EconPapers)
JEL-codes: C80 Q41 Q42 Q48 Q54 Q55 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: The Energy Transition and the Value of Capacity Remuneration Mechanisms (2022)
Working Paper: The Energy Transition and the Value of Capacity Remuneration Mechanisms (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:139:y:2024:i:c:s0140988324005905

DOI: 10.1016/j.eneco.2024.107882

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