Do Pay-for-Performance Capacity Markets Deliver the Grid Resiliency Outcomes We Need
Competitive wholesale power markets are designed to sustain needed investment through market participants hedging risks in response to transparent pricing in the energy and ancillary services markets.
But in practice, it’s been a challenge to realize market prices fully reflective of actual market conditions. Is the money and risk exposure needed to drive investment “missing” from energy markets?
Several market operators have instituted capacity markets to bridge the gap between revenue available from energy markets and the all-in cost of desired capacity. Capacity markets offer commitments (short-term relative to most investment timescales) to make fixed payments for the right to call on the resource when needed.