Capacity market in Russia: addressing the energy trilemma

Abstract

This doctoral dissertation examines the contribution of the capacity market and capacity remuneration mechanisms (CRMs) introduced in the liberalized electricity market of Russia to achieving the objectives of the energy trilemma: energy security, sustainability, and energy affordability. CRMs are chosen to provide the security of electricity supply by ensuring investments in new conventional power plants. The investors receive guarantee of return on their investments within 10 to 20 years, while agreeing on building contracted capacity on time. Similar CRMs were introduced for renewable energy power plants in 2013 in order to achieve the sustainability goals. Being non-market-based investment incentives, the implementation of CRMs, together with overestimation of the demand growth, has resulted in a capacity oversupply, increasing the amount of the capacity that is not selected in the capacity auction and receives capacity payments to stay in the market for the system reliability reasons. Therefore, CRMs and capacity payments question the design of the capacity market and impact on the final consumer capacity price, and thus, result in an energy affordability issue. The objective of this doctoral dissertation is to analyse the outcomes of having a capacity market and CRMs in Russia and their effectiveness in the context of the energy trilemma. The results suggest that implemented CRMs can guarantee energy security in the short term. However, the current capacity market design cannot provide market-based incentives to invest in new power plants, thereby undermining the provision of energy security in the future. CRMs for renewable energy alone will not suffice to achieve the sustainability goals set by the policy makers, at least in the short term. At the same time, CRMs, capacity payments, and challenges faced in the wholesale electricity and capacity market contribute to the increase in the final consumer electricity cost, producing incentives for demand response.