Assessing the Impacts of Capacity Mechanisms on Generation Adequacy With Dynamic Simulations

There have been many debates over whether the energy-only electricity market will be able to provide a reasonable investment signal. So far, many diverse designs of capacity mechanisms have been proposed in relation to the adequacy problem. Researchers have conducted many qualitative studies of capacity mechanisms, but quantitative studies have largely been ignored. The framework for examining the impacts of market designs on generation adequacy considering various generation technologies have not been maturely developed. This paper focuses on developing this framework and finding out how effective capacity mechanisms are in different market conditions. To cover investment under uncertainty, we will introduce different utility functions representing risk attitudes and apply the expected utility theory to the investment decision. Finally, we will examine the investment decision sensitivity of the risk components such as the risk-attitude, the error of forecast peak load, and the forced outage rate and evaluate the performance of three market designs with dynamic simulations: an energy-only market, a capacity payment model, and a capacity demand curve model.