Conclusion

Todd S. Aagaard; Andrew N. Kleit

doi:10.1017/9781108779159.014

14 - Conclusion

Published online by Cambridge University Press: 24 February 2022

Todd S. Aagaard and

Andrew N. Kleit

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Todd S. Aagaard: Affiliation:
Villanova University Charles Widger School of Law
Andrew N. Kleit: Affiliation:
Pennsylvania State University

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Summary

After two decades in which they have grown tremendously in size, importance, and complexity, capacity markets are due for a comprehensive reassessment. The analysis in this book challenges several of the core assumptions on which capacity markets rest:

1. There is no consensus regarding the missing money theory used to justify capacity markets.
2. The use of forward capacity markets appears to lead to systematic errors in forecasting electricity demand, inducing capacity markets to procure excess capacity and impose excess costs on consumers.
3. Both regional transmission organizations (RTOs) and FERC seem fixated on concerns that capacity prices are too low, despite strong evidence that prices are higher than necessary.
4. Capacity markets have become increasingly and inexorably complex, due in significant part to regulatory accretion that undermines the role of market forces.
5. The widespread use of an engineering-based reliability standard based on a fixed risk-of-outage metric is ill-suited to the goal of reliability.

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Type: Chapter
Information: Electricity Capacity Markets , pp. 252 - 266

DOI: https://doi.org/10.1017/9781108779159.014 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2022

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