The capacity market provides “missing money” for resources and supplements energy market sales. Resources, including renewables, recover a portion of their fixed and capital costs from the capacity market after netting energy margins. Some market participants believe that the implementation of performance incentives in the PJM and ISO-NE capacity markets will detrimentally impact the economics and development of variable output resources, namely wind and solar. Many market participants are concerned that the penalties associated with underperformance would outweigh the base capacity revenues for such resources. Furthermore, they are concerned that the uncertainty over net payment after penalties complicates planning.
While the two-settlement processes for capacity payments rolled out by PJM and ISO-NE create uncertainty for variable output resources, they might not have any significant detrimental impact on their development. Download your copy of this whitepaper to learn more.