CAPACITY PAYMENTS IN A COST-BASED WHOLESALE ELECTRICITY MARKET: THE CASE OF CHILE

A comparison of the generator revenue and market efficiency implications of an energy and capacity payment market relative to an energy-only market for the cost-based Chilean electricity supply industry finds that, while monthly revenue volatility for generation units is significantly higher for the energy-only market, this is almost entirely explained by an increase in short-term energy price volatility. This increased short-term price volatility provides incentives for market participant behavior that enhances market efficiency and system reliability.

I. Introduction

II. The Chilean Electricity Market

III. Methodology

IV. Results