What does a well-functioning capacity market enable for energy production?

A well-functioning capacity market ensures there is sufficient reliable energy supply to meet future demands, thus enhancing reliability in meeting energy demand. In such a market, electricity providers are paid for their capacity to produce electricity, not just for the energy they actually produce. This ensures that there are sufficient resources available during peak demand periods, which helps to prevent blackouts and maintain system stability.

The capacity market incentivizes generators to be available when needed, thus creating a safety buffer for the grid. This is particularly important in times of high demand or in situations where renewable energy sources, which can be intermittent, may not be producing electricity consistently. By fostering reliability, a capacity market supports overall energy security and the effective functioning of the electricity supply system.