Investment vs. Refurbishment: Examining Capacity Payment Mechanisms Using Stochastic Mixed Complementarity Problems

April 27, 2016 | Journal Article

Front cover of The Energy Journal Authors: Muireann Á Lynch , Mel Devine
The Energy Journal , Vol. 38 , No. 2 , pp. 27-51

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.

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  • Publication Details

    Journal Article

    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
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