Investment vs. refurbishment: incentivising the correct quantity and quality of electricity generators. ESRI Research Bulletin 2016/2/1

Electricity markets are increasingly moving from a design wherein firms are compensated solely for the energy they provide (‘energy only’ markets) to one where firms are also compensated separately for other costs incurred. One example of a separate payment intended to compensate a firm for other costs incurred is a capacity remuneration mechanism (CRM). CRMs are designed to compensate firms for their fixed costs of capacity, or the cost of building the power plant. In this way, CRMs help to ensure that sufficient electricity generation capacity exists to provide sufficient generation during peak demand hours, ensuring reliable supply