Markets - 14/January/2019

Incapacitated markets

Power capacity markets on both sides of the Atlantic face an uncertain future as flexibility becomes a hotter commodity than capacity.

The issue: In countries increasingly reliant on variable supplies of energy from renewable sources can we trust in the forces of supply and demand alone to keep the lights on?
Experts say: Yes, with good market design. It is cheaper to secure supply in times of renewables scarcity by paying high prices for peak generation, or reductions in demand, than to pay generators to maintain capacity in case it is needed

Wake-up call: Fossil fuel generators are earning windfall profits from availability payments, despite providing no added-value for electricity consumers

Key quote: “Capacity markets could just fade off into irrelevance.”

Bottom line: The cost of the energy transition will be higher and its speed slower if poor market design keeps fossil fuel capacity online unnecessarily ...

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