Oxford – Reforming Capacity Markets

The shift towards renewable energy sources has led to changes in power generation portfolios, creating challenges in maintaining system reliability and flexibility. Energy, capacity, and flexibility are essential for meeting peak demand, especially with the intermittency of renewable resources. Traditional market designs may not incentivize investments in needed resources, leading to a scarcity of adequate generation capacity. This has prompted the introduction of capacity remuneration mechanisms (CRMs) to ensure sufficient investments in capacity and provide incentives for flexibility. By addressing the missing money problem and refining scarcity pricing, CRMs aim to support the energy transition and ensure resource adequacy in power systems facing increased uncertainty and extreme weather events.