Electricity Capacity Markets

Electricity Capacity Markets explores the rationales, workings, and effectiveness of capacity markets in enhancing system reliability, making them a billion-dollar institution. They offer an insightful case study of how well our energy systems meet the needs of a complex society, highlighting the challenges of harnessing market forces for social good, creating networks that manage complexity, and achieving sustainability.

Format: Paperback / softback
Length: 300 pages
Publication date: 03 March 2022
Publisher: Cambridge University Press

Originally conceived as ancillary measures to competitive electricity markets, capacity markets have emerged as colossal, highly contentious, and largely misunderstood billion-dollar institutions. Electricity Capacity Markets delves into the rationale behind establishing capacity markets, their operational mechanisms, and their effectiveness in achieving their intended objectives. This comprehensive book appeals to energy experts and non-experts alike, spanning various disciplines such as economics, business, engineering, public policy, and law.

Capacity markets are a significant and thought-provoking topic in their own right, but they also provide a captivating case study of how well our energy systems are adapting to meet the demands of our increasingly complex society. The challenges posed by capacity markets – harnessing market forces for social benefit, designing networks capable of managing complexity, and achieving sustainability – are fundamental challenges for our twenty-first-century advanced industrial civilization.

In the realm of electricity markets, capacity markets have gained prominence as a means to ensure system reliability. These markets were initially conceived as afterthoughts to the competitive electricity markets, aimed at addressing concerns about potential power shortages and ensuring a stable supply of electricity. However, as these markets have evolved, they have become increasingly controversial and complex, raising questions about their effectiveness and efficiency.

One of the primary rationales behind capacity markets is the notion that they can promote investment in renewable energy sources. By providing a financial incentive for the construction and operation of renewable energy facilities, capacity markets can help to diversify the energy mix and reduce dependence on fossil fuels. This, in turn, can help to mitigate climate change and improve air quality.

However, the implementation of capacity markets has also faced significant challenges. One of the main concerns is the potential for market manipulation and abuse. In some cases, power companies may engage in strategic behavior to gain an advantage in the capacity market, such as bidding up the price of electricity or strategically shutting down power plants to drive up prices. This can lead to inefficient use of resources and increased costs for consumers.

Another challenge is the issue of cost-effectiveness. While capacity markets can provide a financial incentive for investment in renewable energy, they can also be expensive to operate. The costs associated with building and operating power plants, as well as the costs of managing the market, can be significant, and may outweigh the benefits for consumers. This can lead to concerns about the fairness of the market and the impact on low-income households.

Despite these challenges, capacity markets continue to play an important role in the electricity industry. They provide a mechanism for ensuring that the grid has sufficient capacity to meet demand, particularly during peak periods. This can help to prevent power outages and ensure that consumers have access to reliable and affordable electricity.

In conclusion, capacity markets are a complex and controversial topic in the electricity industry. While they have the potential to promote investment in renewable energy and improve system reliability, they also face significant challenges related to market manipulation, cost-effectiveness, and fairness. As the industry continues to evolve, it will be important to address these challenges and ensure that capacity markets are implemented in a way that benefits consumers and promotes sustainability.

Weight: 416g
Dimension: 467 x 229 x 20 (mm)
ISBN-13: 9781108747424
Edition number: New ed