Pros and Cons of Capacity Mechanisms- Real Case: Capacity Payment in IREMA

Document Type : Research Paper

Authors

Electricity Market Dept., Iran Grid Management Company (IGMC), Tehran, Iran

Abstract

Energy-only electricity markets and energy+capacity markets have both been experienced in the real world, and each has advantages and shortcomings. Still, there are lots of arguments supporting each of the two designs. Furthermore, the energy+capacity market has different known forms itself, and several capacity mechanisms have been introduced in the literature and most of them have been tried in the real world. It is evident that the electricity market design in each country is customized to fit its socio-economic aspects. The main purpose of this paper is to look closely at Iran Electricity Market (IREMA) and assess the pros and cons of its main design in using the capacity mechanism. To this end, the history of IREMA evolution and the specific design of the capacity mechanism in this market is meticulously surveyed. The theoretical and practical principles that led IREMA founders to choose the EnCa mechanism are discussed. Also, positive/negative impacts of the capacity mechanism are analyzed.

Keywords

Main Subjects

References

[1] Hirth, L. and F. Ueckerdt. Ten propositions on electricity market design: energy-only vs. capacity markets. in Sustainable Energy Policy and Strategies for Europe, 14th IAEE European Conference, October 28-31, 2014. 2014. International Association for Energy Economics.
[2] De Vries, L.J., Generation adequacy: Helping the market do its job. Utilities Policy, 2007. 15(1): p. 20-35.
[3] report, N., Glossary of Terms Used in NERC Reliability Standards. Jan. 2020, North American Electricity Reliability Corporation.
[4] Bernstein, M.A. and J. Griffin, Regional Differences in the Price-Elasticity of Demand for Energy. 2006, RAND Corporation.
[5] Burke, P.J. and A. Abayasekara, The price elasticity of electricity demand in the United States: A three-dimensional analysis. Aug.2017, Centre for Applied Macroeconomic Analysis(CAMA).
[6] Hogan, W.W., On an “Energy only” electricity market design for resource adequacy. 2005, Citeseer.
[7] Brown, D.P., CAPACITY MARKET DESIGN: MOTIVATION AND CHALLENGES IN ALBERTA’S ELECTRICITY MARKET, in The School of Public Policy PUBLICATIONS. March 2018, Univercity of Calgary.
[8] Joskow, P., Symposium on ‘capacity markets’. Economics of Energy and Environmental Policy, 2013. 2(2): p. v-vi.
[9] Newbery, D., Missing money and missing markets: Reliability, capacity auctions and interconnectors. Energy Policy, 2016. 94: p. 401-410.
[10] Duggan, J.E., Capacity market mechanism analyses: a literature review. Current Sustainable/Renewable Energy Reports, 2020. 7(4): p. 186-192.
[11] Stoft, S., Power system economics: designing markets for electricity. Vol. 468. 2002: IEEE press Piscataway.
[12] Bublitz, A., et al., A survey on electricity market design: Insights from theory and real-world implementations of capacity remuneration mechanisms. Energy economics, 2019. 80: p. 1059-1078.
[13] Hildmann, M., A. Ulbig, and G. Andersson, Empirical analysis of the merit-order effect and the missing money problem in power markets with high RES shares. IEEE Transactions on Power Systems, 2015. 30(3): p. 1560-1570.
[14] Bushnell, J., M. Flagg, and E. Mansur, Capacity markets at a crossroads. Energy Institute at Hass Working Paper, 2017. 278.
[15] Lévêque, F., Competitive electricity markets and sustainability. 2007: Edward Elgar Publishing.
[16] Bhagwat, P.C., et al., An analysis of a forward capacity market with long-term contracts. Energy policy, 2017. 111: p. 255-267.
[17] Cramton, P. and S. Stoft, Forward reliability markets: Less risk, less market power, more efficiency. Utilities Policy, 2008. 16(3): p. 194-201.
[18] Cepeda, M. and D. Finon, Generation capacity adequacy in interdependent electricity markets. Energy Policy, 2011. 39(6): p. 3128-3143.
[19] Hasani, M. and S.H. Hosseini, Dynamic assessment of capacity investment in electricity market considering complementary capacity mechanisms. Energy, 2011. 36(1): p. 277-293.
[20] Gusilov, E., capacity market vs energy-only market. The case of Romania. March 2018, Romania Energy Center.
[21] Oren, S.S., Generation adequacy via call options obligations: Safe passage to the promised land. The Electricity Journal, 2005. 18(9): p. 28-42.
[22] Stamtsis, G. and V. Lynchnaras. Integration of capacity markets into the European electricity market. in Proceedings of the DEMSEE 2015 Conference, Budapest, Hungary. 2015.
[23] Finon, D., G. Meunier, and V. Pignon, The social efficiency of long-term capacity reserve mechanisms. Utilities policy, 2008. 16(3): p. 202-214.
[24] Bhagwat, P.C., et al., The effectiveness of a strategic reserve in the presence of a high portfolio share of renewable energy sources. Utilities Policy, 2016. 39: p. 13-28.
[25] Hibbard, P., et al., NYISO Capacity Market Evaluation of Options. Analysis Group Economic, Financial and Strategy Consultatnts, 2015.
[26] NYISO, Installed capacity manual. 2019, New York Independent System Operator.
[27] Hobbs, B., Capacity Markets: Principles & What’s Happening in the US. 2010, Economic and Social Research Council.
[28] Spees, K., S.A. Newell, and R. Lueken, Enhancing the Efficiency of Resource Adequacy Planning and Procurements in the Midcontinent ISO Footprint. 2015.
[29] England, I.N., The Importance of a Performance-Based Capacity Market to Ensure Reliability as the Grid Adapts to a Renewable Energy Future. 2015, October.
[30] ISO-NE, Manual for the Forward Capacity Market (FCM). ISO New England Inc. Available online: https://www.iso-ne.com/participate/rules-procedures/manuals. 2019.
[31] Hildebrandt, E., et al., Annual Report on Market Issues & Performance. 2018, Department of Market Monitoring – California ISO.
[32] ofgem, Annual Report on the Operation of the Capacity Market in 2016/2017. 2017, www.ofgem.gov.uk.
[33] RTE, Bilan Êlectrique 2018. 2019, RTE, https://bilan-electrique-
2018.rte-france.com/marches-mecanisme-de-capacite/.
[34] Wynn, G. and J. Julve, Spain’s Capacity Market: Energy Security or Subsidy. London: Climate Home (http://www. climatechangenews. com/2016/12/13/spains-hidden-e1bn-subsidy-to-coal-gas-power-plants/), 2016.
[35] REE, THE SPANISH ELECTRICITY SYSTEM - End of year forecast 2018. 2020, Red Eléctrica de España.
[36] Ministry of Energy. Feed-in Tariffs for buying renewable Electricity from consumers. 2016; Available from: http://www.satba.gov.ir/suna_content/media/image/2016/09/4798_orig.pdf.
[37] IGMC, Iran bulk power grid - Key indicators. 2020.
[38] IGMC. Annual capacity payment factors. 2021; Available from: https://www.igmc.ir/Documents/EntryId/337132.
 

Files

History

  • Receive Date: 20 November 2021
  • Revise Date: 24 August 2022
  • Accept Date: 29 October 2022

Share

How to cite

Statistics