Pro. Con. Energy Market. Capacity Market.

Capacity markets: Ensure grid reliability by paying participants to commit generation for delivery years into the future.

PRO: 

• guaranteed revenue for energy generation
• encourage aspirational capacity
  • aspirational capacity refers to meeting state mandated renewable goals

CON:

• capacity mandates by the state give a competitive advantage to renewables who access incentives
• “ capacity markets remain vulnerable to price depression as a result of out-of-market subsidies”

Energy-only markets: Pay generators only when they provide power on a day-to-day basis. 

PRO:

• more efficient
• customers don’t pay for energy generation that won’t be called on for power
• protect competition
• promise of high prices during energy scarcity, incentivizes generators to build new plants and keep them ready to operate.
  • ​scarcity pricing has not been triggered when renewable capacity has filled the gap

CON:

• increasingly unstable in low cost energy production
• discourage generators from building new power plants without the guaranteed revenue of a capacity market
• relies on electric demand growth

Utility Dive | The great capacity market debate: Which model can best handle the energy transition?