Abstract: Capacity mechanisms are increasingly used in electricity market design around the world yet their role remains hotly debated. This paper introduces a new benchmark model of a capacity mechanism in a competitive electricity market with many different conventional generation technologies. We consider two policy instruments, a wholesale price cap and a capacity payment, and show which combinations of these instruments induce socially-optimal investment by the market. Our analysis yields a rationale for a capacity mechanism based on the internalization of a system-cost externality�even where the price cap is set at the value of lost load. In extensions, (i) we show how increasing variable renewables penetration can enhance the need for a capacity payment under a novel condition called "imperfect system substitutability" , and (ii) we outline the socially-optimal design of a strategic reserve with a targeted capacity payment.

中文翻译：

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电力竞争市场的最优容量机制

摘要：容量机制在世界各地的电力市场设计中越来越多地被使用，但是它们的作用仍是热门的话题。本文介绍了一种在竞争激烈的电力市场中采用许多不同的常规发电技术的容量机制的新基准模型。我们考虑两种政策工具，批发价格上限和产能支付，并说明这些工具的哪些组合会引起市场的社会最优投资。我们的分析得出了基于系统成本外部性内部化的容量机制的原理-即使价格上限设置为损失负载的价值。在扩展中，（i）我们展示了如何增加可变可再生能源的渗透率如何在一种称为“不完善的系统替代性”的新条件下提高对容量支付的需求，