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A capacity market pays for the provision of capacity rather than electricity generation — helping ensure grid stability in a volatile energy system.
A capacity market is a supplementary electricity market mechanism in which payment is made not for the electricity produced, but for the provision of capacity. Operators of power plants or storage facilities receive compensation for being able to supply electricity at short notice when needed — regardless of whether electricity is actually fed into the grid.
In contrast to the regular electricity market, where energy (kWh) is traded, a capacity market is concerned with the provision of capacity (kW).
Grid operators or market participants procure capacity availability in order to cover supply shortages — for example during periods of low renewable generation or extreme weather conditions.
Battery Energy Storage Systems (BESS) are particularly well suited for this, as they can provide power quickly and at short notice.
• Battery Energy Storage Systems (BESS) with high power capability that can supply electricity immediately in the event of shortages
• Backup power systems or flexible gas-fired power plants as grid reserve
• Participation of industrial plants or demand response systems to temporarily reduce consumption
• Ensuring security of supply in regions with grid constraints
• Supplement to the electricity market in response to increasing volatility from renewable energy
• Compensation per kilowatt of available capacity (€/kW)
• Contract terms (e.g. annual auctions)
• System response time (e.g. < 1 second for BESS)
• Availability requirements (e.g. how often the system must be ready for deployment)
• Comparison with spot market or balancing services revenues
Capacity markets help ensure security of supply even when electricity generation is highly variable. For operators of Battery Energy Storage Systems (BESS), they represent an additional revenue stream — often alongside balancing services and electricity trading. Capacity markets are expected to become increasingly important in a decarbonized but volatile energy system.
