Capacity as a Commodity: A Framework for a New Capacity Market Paradigm that Enables Customer Choice

Date Published: November 2020

Authors: Sari Fink & Mike Borgatti

This paper proposes an alternative to PJM’s capacity market model to increase state control and customer choice in capacity resources, and decrease price volatility and economic and regulatory uncertainty. Rather than PJM procuring capacity, it would sell “Capacity Credits” to load, similarly to how Renewable Energy Credits are traded, with a residual reliability auction to procure additional required capacity. States could control the resource mix of the capacity credits by including them in their resource portfolio standards. The paper includes an example of how the capacity credits would be created, procured and utilized.

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