The Need for Capacity Mechanisms and Options for their Design

Agora Energiewende offers a platform for the public discussion of a capacity mechanism

  • Project Duration: 08/2014 -

Falling wholesale prices and the growing share of renewable power hurt the economic viability of fossil-fueled power plants. By 2011, successive announcements of power plant closures and a reluctance to invest had led to intensive discussions over whether the power supply would be secure in the future. This initiated a search for the best concept for a capacity mechanism to ensure a reliable supply of power.

In 2014, the German government began to devise legislation for a market design. At the start of this process in July, a number of studies were published for the economics ministry. The overarching thesis of these studies is that capacity mechanisms are unnecessary if the existing market framework is further developed in a targeted way to make demand become much more flexible. Power purchasers should reduce demand when market prices are high or very high, thus restoring equilibrium of supply and demand. Proponents of other concepts for a capacity market disagree with this idea.

Agora Energiewende is providing a platform for public discussion of the power market design.

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