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A Critique of Designing Resource Adequacy Markets to Meet Loss of Load Probability Criterion  

Yoon, Yong T. (School of Electrical and Computer Engineering, University)
Felder, Frank A. (School of Business, Manhattan College)
Publication Information
KIEE International Transactions on Power Engineering / v.3A, no.1, 2003 , pp. 35-41 More about this Journal
Abstract
To ensure resource adequacy in restructured electricity markets, policymakers have adopted installed capacity (ICAP) markets in some regions of the United States. These markets ensure that adequate generation exists to satisfy regional Loss of Load Probability(LOLP) criterion. Since the incentives created through ICAP mechanisms directly impact new generation and transmission investment decisions we examine one important factor that links ICAP markets with LOLP calculations;, determining the amount of ICAP credit assigned to particular generation units. First, we review and critique the literature on electric power systems' market failure resulting from demand exceeding supply. We then summarize the method of computing (the LOLP) as a means of assessing reliability and relate this method to ICAP markets. We find that only the expected value of available generation is used In current ICAP markets while ignoring the second and higher order moments, which tends to mis-state the ICAP value of a specific resource. We then consider a proposal whose purpose is to avoid this ICAP assignment issue by switching from ICAP obligations to options. We find that such a proposal may fail to not provide the benefits claimed and suffers from several practical difficulties. Finally, we conclude with some policy recommendations and areas for future research.
Keywords
power system reliability; Loss of Load Probability (LOLP); market mechanisms; electric power industry restructuring; installed capacity;
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