The analysis examines how energy-limited flexibilities can be valued in capacity mechanisms using derating factors. Derating factors make the contributions of different technologies to supply security comparable by converting a technology’s installed capacity into equivalent firm capacity. In a capacity mechanism, derating factors are applied to auction bids (price and quantity) and therefore essential for the mechanism’s effectiveness and efficiency.
The analysis defines and compares four approaches to determining derating factors: the marginal and average substitution ratios between a technology and firm capacity, as well as the marginal and average contributions of a technology during scarcity periods. Using battery storage as an example, it is shown that the derating factor for energy-constrained flexibilities decreases with increasing market penetration across all four approaches, but the value of the factors can differ substantially.
In addition, the influence of imperfect foresight, balancing power requirements, and grid restrictions on derating factors, as well as their transferability to load flexibility and application in capacity mechanisms, are discussed.
