Pros and Cons of Capacity Mechanisms- Real Case: Capacity Payment in IREMA

Energy-only electricity markets and energy+capacity markets have both been experienced in the real world, and each has advantages and shortcomings. Still, there are lots of arguments supporting each of the two designs. Furthermore, the energy+capacity market has different known forms itself, and several capacity mechanisms have been introduced in the literature and most of them have been tried in the real world. It is evident that the electricity market design in each country is customized to fit its socio-economic aspects. The main purpose of this paper is to look closely at Iran Electricity Market (IREMA) and assess the pros and cons of its main design in using the capacity mechanism. To this end, the history of IREMA evolution and the specific design of the capacity mechanism in this market is meticulously surveyed. The theoretical and practical principles that led IREMA founders to choose the EnCa mechanism are discussed. Also, positive/negative impacts of the capacity mechanism are analyzed.

Keywords:

Capacity Mechanism , Electricity market , Energy-only market , Capacity Payment