Discussions on Capacity Mechanisms for Selected Markets in the Recent Energy Crisis

ERRA Regulatory Research Award 2023 3rd Best Paper

Capacity mechanisms have been implemented in many countries for different purposes, even though the primary motivations are to ensure the system reliability and security of supply and protect consumers against price fluctuations. The energy crisis, starting in the aftermath of the COVID-19 pandemic and deepening further following the Russian invasion of Ukraine, adversely affected electricity markets. Countries heavily dependent on gas for power generation could not escape the price surges. At this point, the function of capacity mechanisms in ensuring price stability became controversial. This study mainly aims to build a critical review of the capacity mechanisms considering the impacts of the recent energy crisis on the electricity markets. After addressing the success of six selected electricity markets in protecting consumers against price spikes, it discusses redesigning the current mechanisms.