The Integration of Variable Generation and Storage into Electricity Capacity Markets

We show how to value both variable generation and energy storage in such a way as to enable them to be integrated fairly (from the point of view of capacity providers) and optimally (from the point of view of society) into electricity capacity markets, for example that which operates in Great Britain. We develop a theory based on balancing expected energy unserved against costs of capacity procurement, and in which the optimal procurement may be expressed as that necessary to meet an appropriate reliability standard. In the absence of variable generation and storage the entire theory reduces to that already in common use---both in the definition of a standard and in its economic justification. Further the valuation of both variable generation and storage in the proposed approach coincides with the traditional risk-based approach leading to the concept of an equivalent firm capacity. The determination of the equivalent firm capacity of storage requires particular care; this is due both to the flexibility with which storage added to an existing system may be scheduled, and also to the fact that, when \emph{any} resource is added to an existing system, storage already within that system may be flexibly rescheduled.