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Journal articles

February 2024

Reliability options: Regulatory recommendations for the next generation of capacity remuneration mechanisms

Mastropietro, Paolo; Rodilla, Pablo; Rivier, Michel; Batlle, Carlos

Abstract

The policy and regulatory debate raised after the 2022 energy crisis has reaffirmed capacity remuneration mechanisms (CRMs) as a key element of the electricity market design required to drive the much-needed energy transition. Reliability options are a CRM product that effectively addresses the market failures impacting security of supply, while minimising the interference with the different segments of the energy market. This article provides a comprehensive and detailed assessment of the design elements of reliability options and advances recommendations that can be useful for regulators who may consider introducing this scheme in their electricity markets. The analysis benefits from lessons learned in those power sectors where reliability options have been implemented (Colombia, ISO New England, Ireland, Italy, and Belgium). This allows to narrow the gap between the theoretical debate and the real-world implementation of these mechanisms.

Acknowledgements

Declaration of competing interest The authors declare the following financial interests/personal relationships which may be considered as potential competing interests:Paolo Mastropietro, Pablo Rodilla and Michel Rivier reports financial support was provided by Centre for the Development of Industrial Technology. Michel Rivier reports financial support was provided by Spanish Ministry of Science and Innovation. Acknowledgements This research has been partly supported by the funding of the RETOS COLABORACIÓN programme by the Spanish Ministry of Science and Innovation and the Spanish State Research Agency (MODESC Project, with reference number RTC 2019- 007315–3) and the MISIONES programme by the Centre for the Industrial Technological Development (CDTI) of the Spanish Ministry of Science and Innovation (grant MIG-20201002). Be it said, the opinions presented in this article are solely the authors viewpoint and do not necessarily reflect the funding entity or the institutions where the authors carry out their research activity.

Research Areas
MITEI Author
Senior Lecturer
Sloan School of Management