Capacity Markets Demystified

Deck: 

Emerging capacity auctions offer limited but valuable risk-management tools for asset owners.

Fortnightly Magazine - March 2008
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NOTE: Ventyx Advisors is part of the Ventyx Energy Group formed by the acquisition and merger of Global Energy Decisions and New Energy Associates by Ventyx.

For much of the history of the electric power industry, power generation plants were built by utilities, paid for by ratepayers and incorporated into the utility ratebase as a result of approvals from state regulators.

The past decade has witnessed the development of a large fleet of unregulated, merchant-power generation resources in the United States (see Figure 1). More than one-third of all generation no longer is owned under the traditional vertically integrated electric utility model,1 and these unregulated assets face various markets and a wide range of risks. The revenue expectations for these assets often are divided into two categories: energy and capacity. These concepts frequently are used without a precise definition.

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