March 27, 2020
Capacity markets are used in some wholesale electricity markets to pay resources for being available to meet peak electricity demand. Capacity is not actual electricity, but rather the ability to produce electricity when called upon several years in the future. Capacity market payments cover some or all of the fixed costs of building and maintaining generating resources. In contrast, generators in energy-only electricity markets, like the one used in Texas (the Electric Reliability Council of Texas (ERCOT)), rely on energy market price spikes during periods of shortage to cover their fixed costs. [caption id="attachment_5959" align="alignright" width="268"] Michael Goggin[/caption] In the U.S., capacity markets are used by grid operators in New England,…
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