Does supporting energy storage enjoy capacity compensation

Should capacity remuneration mechanisms account for the value of electricity storage?

Capacity mechanisms should account for the capacity value of electricity storage. In electricity markets around the world, the substantial increase of intermittent renewable electricity generation has intensified concerns about generation adequacy, ultimately driving the implementation of capacity remuneration mechanisms.

How does a capacity mechanism affect electricity storage?

Barriers exist for electricity storage to participate in some capacity mechanisms. Specification of a capacity mechanism affects technology mix and generation adequacy. Call options with a strike price increase the competitiveness of electricity storage. Low storage capacity credits create a strong bias towards conventional power plants.

How does capacity remuneration affect storage investments?

The additional capacity remuneration then leads to more storage investments as compared to an EOM. This effect is particularly important in countries with high capacity needs in the medium-term (2030–2040), where storage technologies are still rather expensive to build. 4.4.3.

Do ancillary services affect energy storage investment returns?

When the market first opened, energy storage could obtain high value returns primarily in areas where ancillary services would receive compensation according to effectiveness. However, rapidly changing policies have had a major influence on the investment returns for energy storage that participates in the ancillary services market.

Can a capacity not able to operate profitably on the EOM?

In reality, existing capacity not able to operate profitably on the EOM would likely also bid with its respective difference costs. However, since we do not consider model endogenous decommissioning of power plant or storage capacity, investment expenses and fixed costs may be considered as sunk costs.

How can energy storage improve the energy system in China?

As the amount of renewable generation in China increases, the power system requires greater integration of flexible resources for regulation. In the low-carbon energy system of the future, energy storage will play a critical role in renewable integration and grid stability.