A Market Based Electricity Capacity Mechanism Model for Turkey

Market players in a liberalized electricity sector are subject to trading energy through bilateral agreements or organized platforms. Energy-only trading through those venues might fall short in providing the required conditions for system reliability due to the well-known phenomenon of "missing money problem". In order to avoid unintended loss of load, additional market mechanisms were developed in time. Several markets utilized capacity remuneration mechanisms to secure the system reliability through market-based or non-market-based models. Specifically, in Turkish electricity market, the regulator has implemented "direct payment" approach where generators fulfilling pre-determined conditions receive remunerations based on their installed capacities. This mechanism can be considered as a "quasi-market-based" model due to links to the market price formation. However, in principle, it should be categorized as a non-market-based model due to direct payments based on installed capacity levels. In this study, existing capacity remuneration mechanism in Turkey is analysed, an alternative market-based auctions model is developed and its results are simulated via Monte Carlo analysis. The study also elaborates on comparative advantages of the proposed market-based model over the existing approach and why it is a better option to preserve system reliability while being fully compliant with the electricity market reform goals.