Capacity remuneration mechanisms exist in many electricity markets. Capacity mechanism designs do not explicitly consider the effects of refurbishment of existing generation units in order to increase their reliability. This paper presents a stochastic mixed complementarity problem to examine the impact of refurbishment on electricity prices and generation investment. Capacity payments are found to increase reliability when refurbishment is not possible, while capacity payments and reliability options yield similar results when refurbishment is possible. Final costs to consumers are similar under the two mechanisms with the exception of the initial case of overcapacity.
Sponsorship
European Commission - European Regional Development Fund
Science Foundation Ireland
Other Sponsorship
Energy Policy Research Centre (EPRC)
Type of Material
Journal Article
Publisher
International Association for Energy Economics (IAEE)