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- Title
Capacity Market and Investments in Power Generations: Risk-Averse Decision-Making of Power Producer.
- Authors
Makimoto, Naoki; Takashima, Ryuta
- Abstract
The penetration of power generations from renewable energy sources into the power market has a significant impact on the capacity factor of existing power generations. This is because power producers cannot recover a capital cost of power generations with high operating cost possibly due to underinvestment. One solution to address this problem includes a capacity mechanism; that is, the capacities of the power generations can be sold through a market or a bilateral contract. Many schemes of the capacity mechanism have been used worldwide. In this study, we examine an investment in a power plant in both the electricity and capacity markets. The effect of investment opportunity on uncertainty and risk aversion is analyzed by a real options approach that is one of analytical methods for investment decisions under uncertainty. The investment timing for the standard energy-only market is compared with that for the capacity market. When the risk averse for the power producer is relatively small, the income in the energy-only market is obtained whereas, when the risk averse is relatively high, the income is gained in both the electricity and capacity markets for the sake of enough profit.
- Subjects
INDUSTRIAL capacity; MARKET power; ELECTRICITY markets; RENEWABLE energy sources; ELECTRICITY pricing
- Publication
Energies (19961073), 2023, Vol 16, Issue 10, p4241
- ISSN
1996-1073
- Publication type
Article
- DOI
10.3390/en16104241