Initially created as afterthoughts to competitive electricity markets, capacity markets were intended to enhance system reliability. They have evolved into massive, highly controversial, and poorly understood billion-dollar institutions. Electricity Capacity Markets examines the rationales for creating capacity markets, how capacity markets work, and how well these markets are meeting their objectives. This book will appeal to energy experts and non-experts alike, across a range of disciplines, including economics, business, engineering, public policy, and law. Capacity markets are an important and provocative topic on their own, but they also offer an interesting case study of how well our energy systems are meeting the needs of our increasingly complex society. The challenges facing capacity markets – harnessing market forces for social good, creating networks that manage complexity, and achieving sustainability – are very much core challenges for our twenty-first century advanced industrial society.

‘Incentives to invest in electricity supply are crucial to successful market design. Introducing in rich detail both US experience and the academic literature, Professors Aagaard and Kleit provide essential background for identifying the reforms needed to make capacity markets efficient and effective in this rapidly evolving industry.'

Benjamin F. Hobbs - Theodore M. and Kay W. Schad Professor of Environmental Management, The Johns Hopkins University

‘Aagaard and Kleit's Electricity Capacity Markets is a comprehensive and insightful discussion of the history, regulation, and economics of capacity markets in the eastern US RTOs. The authors identify many important tradeoffs in market design as well as opportunities to expand the role of economics in future incarnations. It is an invaluable resource for students, regulators, and market participants alike. I highly recommend it.'

Karen Palmer - Director of the Future of Power Initiative, Resources for the Future

‘Electricity Capacity Markets provides compelling insights into the rationales and performance of capacity markets. The authors' call for a comprehensive assessment of these constructs is acutely felicitous. Now, at the apex of controversy, it is imperative to improve capacity markets for a reliable, innovative and cost-effective clean energy transition.'

Devin Hartman - Director of Energy and Environmental Policy, R Street Institute

‘Capacity auctions are notoriously complicated due to their ever-changing rules and regional variations. Aagaard and Kleit bring much-needed clarity. Their work meticulously describes and critiques the fundamental elements of capacity auction design, from their theoretical underpinnings to their most recent rules that obstruct states' clean energy policies.'

Ari Peskoe - Harvard Law School Environmental and Energy Law Program

‘This book is very timely. It is also much needed, given the vacuum of resources around capacity markets … [it] is highly readable and a useful resource. I highly recommend it for capacity market practitioners and economists who want to learn more about the implementation of the markets.’

Sylwia Bialek Source: The Energy Journal

‘Aagaard and Kleit provide a readable, informative, and insightful critique of electricity capacity markets. [The book] lays out the major questions and issues surrounding these controversial and ever-changing policy markets using a combination of economic, legal, and empirical reasoning. No book will end the debate regarding capacity markets, but this one has advanced it.’

Frank A. Felder Source: The Electricity Journal