Equivalence of Scarcity Pricing and Reliability Options in Guiding Generation Investment

Abstract

Under the goal of zero carbon emission proposed by governments in different countries, the penetration rate and proportion of renewable energy will continue to increase. However, the uncontrollable and unpredictable nature of new energy generation poses a great challenge to the reliability of the power system. In recent years, there have been many studies on capacity remuneration mechanisms (CRM), and they all focus on their differences or advantages and disadvantages, without analyzing the commonalities. To this end, this paper selects scarcity pricing and reliability options, to explore the equivalence of the two mechanisms in inducing the generation capacity. We demonstrate that the mechanisms can direct the generation capacity to the same point and induce the generation mix based on the expected revenue by different power suppliers. Finally, some perspectives on the construction of capacity remuneration mechanisms in China are provided.