Flow-based forward capacity mechanism: an alternative to the regulated capacity remuneration mechanisms in electricity market with high RES penetration

Abstract

The rapid adoption of variable renewable generation has created new challenges in the maintenance of power system adequacy. On one hand, its non-dispatchable nature increases the need for firm and flexible load-following peaking power generation. On the other hand, its significantly lower short-run marginal cost raises the missing-money issue, which increases the tendency of conventional generators in terminating their services because of the reduced economic incentives. Therefore, many regulators have begun to implement remedial measures called capacity remuneration mechanisms (CRMs) to curb the problem. Though effective in supporting the operation of these generators, the mechanisms affects the cross-border sharing of generation resources. The shortcomings are discussed in this paper. Afterwards, the paper proposes a mechanism called the flow-based forward capacity mechanism as an alternative for accommodating the involvement of both domestic and foreign capacity generators in the cross-border competition for the supply of capacity generation. The mechanism is able to recover the missing-money bear by the capacity generators in a fair manner. Additionally, it offers a concise method for gradually phasing-out the service of capacity generators as the market transforms into a full RES form.