A capacity market is a supplementary market wherein the capability to serve the system demand is purchased ahead of time. This provides increased assurance that sufficient supply capacity will be available when needed.
The changing supply mix as renewables are introduced and coal is phased out prompted examination of what is needed to ensure electricity supply adequacy for Alberta in the long run. The system operator recommended transitioning from an energy-only to capacity market framework to better support generation investment to maintain system reliability in a cost-effective manner.
The Government of Alberta supported the recommendation and directed the AESO to design and implement a capacity market. The new framework is expected to be in place by 2021.
The capacity market will complement Alberta's energy market. Those suppliers that are cleared in the capacity market will receive revenues in return for the obligation to make capacity available, in addition to the revenues received in the energy market in return for producing electricity. The allocation of the capacity obligations will be determined through an auction. Generators will submit bids for capacity contracts and the ISO will clear this market by procuring enough capacity to meet expected demand.
More information about the capacity market transition in Alberta is available on the AESO and Government of Alberta websites.