Capacity market

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A capacity market is a market scheme rewarding power generators for their potential to produce output when needed. It is designed to ensure sufficient reliable power capacity is available by providing payments to encourage investment in new capacity or for existing capacity to remain open [1]. Capacity represents the need to have adequate generating resources to ensure that the demand for electricity can be met at all times. In a capacity market the utility or other electricity supplier are required to have enough resources to meet its customers’ demand plus a reserve amount. Suppliers can meet that requirement with generating capacity they own, with capacity purchased from others under contract, or with capacity obtained through market auctions [2]. Capacity markets are the firing line for the electricity system of the future, because they direct and encourage investments in different kinds of assets, whether that is clean energy, fossil fuels, or demand side resources.

Links for further research

  1. PJM Energy Market [1]
  2. Direct Energy Business [2]