Efficient cost allocation in capacity remuneration mechanisms: applying cost causation to resource adequacy

P. Brito-Pereira, P. Rodilla, P. Mastropietro

International Journal of Electrical Power & Energy Systems Vol. 173, pp. 111441

Summary:

Capacity Remuneration Mechanisms (or CRMs) have become widespread in liberalised power systems as a regulatory tool to ensure resource adequacy. As these mechanisms have grown in importance, so have the associated costs. However, the methods used to allocate CRM costs remain far too simplistic, failing to provide electricity consumers with adequate economic signals. In this article, we propose allocating CRM costs based on cost causation by calculating each consumer’s negative marginal impact on the system’s reliability standard. This methodology results in the definition of hourly cost-allocation factors that can ultimately be used to allocate CRM costs to any demand profile. We quantitatively evaluate the methodology through two case studies: a stylised study to illustrate the underlying concepts and a full-scale study inspired by the Spanish power system. These case studies demonstrate that CRM costs should not be allocated exclusively to peak demand; rather, they should be distributed across each hour according to the impact that an additional unit of demand in that hour would have on the system’s reliability metric.

Spanish layman's summary:

Este artículo presenta una nueva metodología para asignar los costes de CRM basada en la causalidad de los costes, calculando el impacto marginal negativo de cada consumidor sobre el estándar de fiabilidad del sistema.

English layman's summary:

This article presents a new methodology to allocate CRM costs based on cost causation by calculating each consumer’s negative marginal impact on the system’s reliability standard.

Keywords: Resource adequacy; Capacity mechanisms; Cost allocation; Firm supply; Demand response

JCR-JIF Impact Factor and WoS quartile: 5,300 - Q1 (2025)

DOI reference: https://doi.org/10.1016/j.ijepes.2025.111441

Published on paper: December 2025.

Published on-line: December 2025.

Citation:
P. Brito-Pereira, P. Rodilla, P. Mastropietro, "Efficient cost allocation in capacity remuneration mechanisms: applying cost causation to resource adequacy", International Journal of Electrical Power & Energy Systems, Vol. 173, pp. 111441, December 2025. [Online: December 2025] doi: 10.1016/j.ijepes.2025.111441