Capacity & Availability
Capacity and availability remuneration based on system value.
Overview
Supplying electrical energy requires far more than simply producing electricity when it is needed.
The electricity system must also maintain sufficient resources capable of supplying future demand, responding to uncertainty and maintaining system reliability.
The purpose of the Capacity and Availability layer is to provide these long-term investment signals.
Unlike the Wholesale Market, which recovers the variable costs of producing energy, the Capacity and Availability Market recovers the fixed costs associated with building, maintaining and operating electricity system assets.
Within FP-AMM, these payments are based not simply on installed capacity, but on the value each resource provides to the overall electricity system.
Purpose
The Capacity and Availability Market performs four fundamental functions.
- Recover long-term capital investment.
- Reward resources for remaining available.
- Encourage investment where it delivers the greatest system value.
- Maintain long-term system reliability.
These objectives are distinct from those of the Wholesale Market and therefore require a separate economic mechanism.
Why a Separate Market?
Producing energy and remaining available are fundamentally different services.
A generator may produce very little energy during the year while still being essential for maintaining system reliability.
Similarly, a battery, demand response resource or interconnector may only operate during relatively rare periods of system stress while providing substantial value to the wider electricity system.
Recovering these costs solely through energy prices can produce weak or distorted investment signals.
Separating energy payments from availability payments allows each service to be valued independently.
Availability Rather Than Production
Within FP-AMM, participants are not rewarded solely for the quantity of electricity they produce.
Instead, they are also rewarded for making reliable capability available to the electricity system.
Availability therefore becomes an explicit economic product.
Resources capable of responding during periods of scarcity provide greater value than identical resources unavailable when they are needed most.
The objective is to reward dependable contribution rather than simple installed capacity.
System Value
Not all capacity contributes equally to the operation of the electricity system.
The value of a resource depends upon many factors, including:
- location,
- availability,
- flexibility,
- response speed,
- network constraints,
- contribution during scarcity,
- interaction with other resources.
Two generators with identical installed capacity may therefore contribute very different levels of value to the electricity system.
FP-AMM recognises these differences explicitly.
Marginal Contribution
The Capacity and Availability Market evaluates each participant according to the additional value it contributes to the overall system.
Resources that significantly improve system reliability, relieve persistent constraints or provide valuable flexibility receive correspondingly larger rewards.
Conversely, resources providing little incremental benefit receive lower payments.
This creates stronger investment incentives than treating all installed capacity as economically identical.
Shapley Settlement
FP-AMM measures long-term system contribution using the Shapley Value.
Rather than allocating revenues according to installed capacity alone, the Shapley framework estimates the marginal contribution each participant makes across all possible combinations of system resources.
This produces payments that more closely reflect genuine system value.
Resources are therefore rewarded according to the contribution they make to the reliability and capability of the electricity system rather than simply the amount of capacity they own.
The detailed methodology is described within the Shapley Settlement section.
Investment Signals
Every payment within the Capacity and Availability Market acts as an investment signal.
Higher revenues encourage additional investment where new resources provide meaningful improvements to system performance.
Lower revenues discourage investment where additional capacity contributes relatively little value.
Over time, this encourages the electricity system to evolve towards a more efficient mix of generation, storage and flexible demand.
Rather than prescribing technology choices, the market allows investment decisions to emerge naturally from system value.
Relationship with the Wholesale Market
The Wholesale Market and Capacity Market recover different categories of cost.
The Wholesale Market recovers:
- fuel,
- variable operating costs,
- short-run production costs.
The Capacity and Availability Market recovers:
- capital investment,
- fixed operating costs,
- availability,
- long-term reliability.
Separating these functions allows prices within each market to communicate clearer economic signals.
Relationship with Network Economics
Availability is influenced by the physical electricity network.
A generator located behind a persistent transmission constraint may contribute less system value than an otherwise identical generator located where additional capacity can be fully utilised.
Similarly, storage or flexible demand located within constrained areas may provide disproportionately high value.
The Capacity and Availability Market therefore naturally interacts with the Network Economics layer.
Together they encourage investment not only in additional capacity, but in capacity located where it delivers the greatest benefit.
Technology Neutrality
The Capacity and Availability Market does not favour particular technologies.
Any resource capable of contributing to system reliability may participate.
Examples include:
- renewable generation,
- conventional generation,
- battery storage,
- pumped storage,
- interconnectors,
- flexible industrial demand,
- aggregated consumer flexibility,
- future technologies capable of providing reliable capacity.
The market rewards contribution rather than technology.
Long-Term Reliability
Reliable electricity systems require investment decisions extending decades into the future.
The Capacity and Availability Market provides the long-term economic signals required to support these investments.
Rather than relying upon administrative intervention, the objective is to allow market participants to identify where future investment provides the greatest value to the overall electricity system.
Relationship to FP-AMM
The Capacity and Availability Market forms the long-term investment layer of FP-AMM.
The Wholesale Market coordinates the continuous exchange of energy.
The Retail Market defines the service purchased by consumers.
The Network Economics framework recovers infrastructure costs.
The Capacity and Availability Market rewards participants for providing reliable capability and long-term system value.
Together these layers provide a coherent economic framework covering both short-term operation and long-term investment.
Summary
Within FP-AMM, the Capacity and Availability Market provides the long-term investment signals required to maintain a reliable electricity system.
Rather than rewarding installed capacity alone, participants are compensated according to the value they contribute to the overall system, recognising that availability, flexibility, location and reliability all influence system performance.
By separating long-term investment from short-term energy production and settling payments according to marginal system contribution through the Shapley framework, FP-AMM creates transparent incentives for investment in the resources that provide the greatest benefit to consumers and the electricity system as a whole.