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6 FAQs about [Independent energy storage capacity compensation]
Should capacity remuneration mechanisms account for the value of electricity storage?
Capacity mechanisms should account for the capacity value of electricity storage. In electricity markets around the world, the substantial increase of intermittent renewable electricity generation has intensified concerns about generation adequacy, ultimately driving the implementation of capacity remuneration mechanisms.
How does a capacity mechanism affect electricity storage?
Barriers exist for electricity storage to participate in some capacity mechanisms. Specification of a capacity mechanism affects technology mix and generation adequacy. Call options with a strike price increase the competitiveness of electricity storage. Low storage capacity credits create a strong bias towards conventional power plants.
How does capacity remuneration affect storage investments?
The additional capacity remuneration then leads to more storage investments as compared to an EOM. This effect is particularly important in countries with high capacity needs in the medium-term (2030–2040), where storage technologies are still rather expensive to build. 4.4.3.
Does storage duration affect the cost of a power plant?
In this setting, the conventional power plant has constant difference costs since it is not affected by the required storage duration. Contrary, the capacity of the small storage unit is already derated under relatively low storage duration requirements due to its limited storage volume.
How does a capacity mechanism affect power generation adequacy?
Specification of a capacity mechanism affects technology mix and generation adequacy. Call options with a strike price increase the competitiveness of electricity storage. Low storage capacity credits create a strong bias towards conventional power plants. Capacity mechanisms should account for the capacity value of electricity storage.
Can a capacity not able to operate profitably on the EOM?
In reality, existing capacity not able to operate profitably on the EOM would likely also bid with its respective difference costs. However, since we do not consider model endogenous decommissioning of power plant or storage capacity, investment expenses and fixed costs may be considered as sunk costs.