markets in the U.S. have evolved substantially. There are now many ways an electron, or the promise of an electron, can generate value. As we move toward a new energy economy, expect to see new markets that define new values.Energy-only markets conceptually pay a single price for power. This price is supposed to cover the variable costs of production (e.g., fuel and variable operations and maintenance) and the fixed costs (e.g., capital investment and the return on that investment required to encourage new entrants). Market price caps, however, limit the magnitude of price spikes, resulting in missing money otherwise required to cover fixed costs of production.Capacity markets developed to cover the missing money that power suppliers could not earn in energy-only markets. New England, New York, PJM Interconnection and Midwest Independent Transmission System Operator Inc. (MISO) have implemented capacity markets in some form, and prices have been set by competitive auctions for future megawatts of capacity. Demand-side response has been a big winner in some of these markets, foreshadowing the potential for price-responsive retail consumption to participate in wholesale markets.
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