3. Generation investment and capacity mechanisms
What is this week about?
Have you ever wondered how electricity generators, with such high capital costs and such variable market prices, attract investment? How do generators recover their costs if they only ever bid their variable costs on the market? And what happens to this cost recovery when renewable energy sources, which are essentially free to run, become the main resource for energy generation in the future?
By the end of week three, you will be able to answer these questions. You will look at the issues with investment in the current market and the solutions, also known as capacity mechanisms, that are being used in the EU. Will a strategic reserve, a capacity market or capacity subscription be the ultimate way to secure electricity supply?
This week you will be tested using sample cases, taking you through some more mathematical questions to broaden your knowledge on electricity markets, as well as the usual quiz based assignments.
By the end of this week, you will:
- Be able to understand the challenge to investment recovery in current energy markets and future energy markets
- Be able to describe how generators currently recover their costs
- Be able to understand how the introduction of renewable energy sources affect the current energy portfolio
- Be able to understand strategic reserves and capacity market incentivize investments
- Be able to explain how a capacity subscription can incentive investment and how it can be applied to future energy markets
Which way will you think is best for incentivizing investment in a future electricity market? Find out the answers in the next few videos!