The future design of electricity markets: Capacity payments or smart solutions?

Abstract

Currently, increasing shares of intermittent renewable energy sources (RES) are changing the common pattern of electricity markets, especially in Western Europe. This development has led to the call for capacity markets in addition to the current energy-only markets. The objective of this paper is to discuss the relevance and the effects of capacity markets and the alternatives. The most important conclusion is that the evolution of a flexible system for the renewable integration of RES, considering other elements such as grid extension, smart grids, technical demand-side management, economic demand response and short and long-term storage, is favorable to the capacity markets in Western Europe and may also serve as a role model for largely RES-based electricity suppliers in other countries world-wide. © 2014 WIT Press.