Definition
A capacity market is a mechanism used in some grid regions to ensure resource adequacy — the long-term ability of electricity supply to meet demand under both normal and stressed conditions. Unlike the energy market, which pays for electricity actually delivered now, a capacity market pays resources for the promise to be available to deliver power when called upon, often years in the future. High capacity prices signal that new supply is needed; low prices signal surplus and encourage retirements.
How it works
Grid operators run periodic auctions in which generators, storage, and demand-side resources bid to supply a defined quantity of capacity for a future delivery year. PJM's version, the Reliability Pricing Model (RPM), procures capacity about three years ahead so that developers have time to build. A resource that clears the auction receives a capacity payment and, in exchange, commits to perform during scarcity events — facing penalties if it fails to show up when the system is tight.
Relevance to flexible load
Demand-side resources, including curtailable Bitcoin mines, can participate as capacity by committing to reduce consumption during the hours the grid is most stressed. Shedding load during a scarcity event is, from the operator's standpoint, equivalent to supplying capacity. For a miner this offers another revenue layer that is largely independent of hashprice, with the obligation to actually curtail when called — and to accept penalties for non-performance.
Capacity markets work alongside the ancillary services and energy markets, and participation as a load resource typically routes through demand response and curtailment programs. Clearing the interconnection queue is a prerequisite for generators bidding in.
In Simple Terms
A capacity market is a mechanism used in some grid regions to ensure resource adequacy — the long-term ability of electricity supply to meet demand…