Design of market-based mechanism remunerating capacity and flexibility for a European market

For a European market, Brattle experts developed a high-level proposal for the design of the capacity and flexibility market mechanism. The need for these mechanisms is partly driven by substantial growth in wind and especially solar generation, which is changing the nature of reliability challenges in the electricity system. It is increasingly important not only to have a sufficient quantity of capacity, but also to ensure that a sufficient portion of that capacity is flexible. In this engagement, we started with a set of market design principles that reflect the system and policy objectives, drew on our substantial international experience with capacity mechanisms, and proposed a design package that produces efficient long-run investment incentives to attract an adequate quantity of traditional and flexible capacity to operate the system reliably in future years.