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.
ESRI Series Number: 201611 Research Area:Energy and Environment Date of Publication: April 27, 2016 Published Online: April 19, 2016 Publisher: International Association for Energy Economics View External Link
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