The Use of Marginal Energy Costs in the Design of U.S. Capacity Markets

Date
2018-01-03
Authors
Moye, Robert
Meyn, Sean
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Abstract
This paper surveys the development of marginal cost theories used in the optimal allocation of scarce resources, and examines the application of these theories to current-day electricity capacity markets. The different approaches in use today to ensure grid reliability and incentivize new resources are examined. Market challenges are surveyed, as well as empirical findings that suggest that current market approaches do not provide proper incentives. We conclude that the so-called "missing money" is not missing because of defects in market designs, or so-called administrative actions---money to incentivize investments is missing due to a misapplication of marginal cost theory.
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Keywords
Markets, Policy, and Computation, Capacity, Electricity, Marginal, Markets, Scarcity
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