What China, Germany, and Texas tell us about Capacity Adequacy

AI generated summary

As intermittent renewables become more prevalent in the energy mix, the need for reliable firm power generation during periods of shortfall becomes crucial. However, back-up power sources have uncertain utilization rates and high upfront costs, making it challenging for private investors to commit. To address this issue, the concept of "capacity mechanisms" has emerged, offering additional payments to back-up plants to ensure financial viability and grid stability. Countries like Germany, China, and Texas are exploring various strategies to tackle this challenge and ensure a smooth transition as intermittent renewables increase.

Germany recently approved a power plant strategy that includes subsidies for 10 gigawatts of gas-fired power generation, alongside a technology-neutral capacity payment mechanism to allow for competition. China, on the other hand, has implemented a similar capacity payment mechanism for coal-fired power plants to ensure electric reliability. In Texas, the decision to procure firm capacity resources through outside-the-market subsidy mechanisms reflects the global trend of the necessity for new policy interventions to make firm dispatchable capacity financially viable in the face of increasing renewable energy penetration rates.