Currently, battery storage is built based economics but only built downstream of other capacity addition mechanisms. Batteries receive capacity market revenue, however.
The current setup can lead to oscillating capacity market revenue as the following happens:
1) Capacity is need for reliability
2) The capacity market mechanism runs, generating a price.
3) New capacity is built to meet the reliability standard.
4) Downstream, additional battery capacity, which could be used for reliability, is built afterwards. The total installed capacity for reliability can vastly exceed the requirement, especially with high capacity prices.
5) In the following several timesteps, the new battery capacity causes no new capacity to be required for several years, until the capacity mechanism is triggered again.
6) The cycle repeats. We have seen it in several models on a 2-5 year periodicity.
To fix this, storage needs to be integrated into the capacity mechanism. It can still be added on a one year time delay, but it needs to be able to contribute to the capacity obligation as one of the resources.
robbieorvis
commented
1 month ago
Currently, battery storage is built based economics but only built downstream of other capacity addition mechanisms. Batteries receive capacity market revenue, however.
The current setup can lead to oscillating capacity market revenue as the following happens:
1) Capacity is need for reliability 2) The capacity market mechanism runs, generating a price. 3) New capacity is built to meet the reliability standard. 4) Downstream, additional battery capacity, which could be used for reliability, is built afterwards. The total installed capacity for reliability can vastly exceed the requirement, especially with high capacity prices. 5) In the following several timesteps, the new battery capacity causes no new capacity to be required for several years, until the capacity mechanism is triggered again. 6) The cycle repeats. We have seen it in several models on a 2-5 year periodicity.
To fix this, storage needs to be integrated into the capacity mechanism. It can still be added on a one year time delay, but it needs to be able to contribute to the capacity obligation as one of the resources.