Sources and Implications of Inaccuracies in Capacity Credit Calculations: A Static Analysis of Electric Generation Capacity Markets

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• Ben Hobbs (Johns Hopkins University)
• Tuesday 19 March 2019, 12:00-12:45
• Seminar Room 1, Newton Institute.

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A static (single shot) model of capacity investments for thermal and renewable resources under energy and capacity markets as well as energy price caps is considered. Under assumptions of risk neutrality and continuous capacity investment variables, it is proven that there exists a capacity (in $/MW capacity credit/yr) and a set of capacity credits by generation type (MW credit/MW nameplate capacity) that supports the most efficient mix of capacity types. However, capacity credits are often set for political reasons, fail to reflect dynamics of levels of penetration upon the marginal contribution of capacity to reliability, or are estimated considering inadequate sample sizes of variable energy output. Through market simulations for an ERCOT -like system, the genmix and efficiency impacts of credits deviating from first-best levels are calculated for various scenarios of erroneous credits.
(Co-author: Cynthia Bothwell, US Dept. Energy, Office of Energy Efficiency & Renewable Energy)

This talk is part of the Isaac Newton Institute Seminar Series series.

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