# The integration of variable generation and storage into electricity capacity markets

## TL;DR

This paper develops a theoretical framework for valuing variable renewable energy sources and storage to integrate them fairly into electricity capacity markets, ensuring reliability and cost-effectiveness.

## Contribution

It introduces a novel valuation method for storage and variable generation based on balancing unserved energy and capacity costs, extending traditional risk-based approaches.

## Key findings

- Valuation aligns with traditional risk-based methods.
- The theory accounts for storage flexibility and scheduling.
- Illustrated with a GB system example.

## Abstract

We show how to value both variable generation and energy storage to enable them to be integrated fairly and optimally into electricity capacity markets. We develop theory based on balancing expected energy unserved against costs of capacity procurement, and in which the optimal procurement is that necessary to meet an appropriate reliability standard. For conventional generation the theory reduces to that already in common use. Further the valuation of both variable generation and storage coincides with the traditional risk-based approach based on 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 because, when any resource is added to an existing system, storage already within that system may be flexibly rescheduled. We illustrate the theory with an example based on the GB system.