Can Electricity Markets Work Without Capacity Prices?
MANY PLAYERS IN THE ELECTRIC INDUSTRY HAVE COME to believe that energy-only prices will soon replace the hundred-year tradition of pricing both energy and capacity.
This idea, sometimes called "monomic" trading, offers a seductive simplicity. Even so, research indicates that it is unlikely to work well.
First, consider some terminology. Traditional electric markets contain prices for both energy and capacity. Energy prices pertain to the actual kilowatt-hours. Capacity prices pertain to the right to take energy.