Capacity Compensation Price Evaluation Considering Economic Benefit of Energy Market in a Power Spot Market

In the power spot market, capacity mechanism for compensating “missing money” from energy market is a necessary market product in the power market system. Currently, capacity compensation instead of capacity market is appropriate at the stage when power spot market is starting up in China. Therefore, determination of regulated capacity price is the key for capacity compensation mechanism. In the paper, a method for evaluating capacity price with consideration of target capacity adequacy is proposed. A production cost simulation is applied for quantifying economic benefit of energy market for all GENCOs. An economic model using internal rate of return based on revenue of energy market and capacity compensation is designed for determining new entrant and retirement generators. Capacity price is adjusted based on the difference between target total system capacity and expected one after generator availability decision until the target total system capacity is satisfied. Case study for verifying the proposed method is performed to quantify the capacity price based on different scenarios including high penetration of renewable generation and high coal price.