Capacity certificate, a step forward in the Iranian power market

Based on theoretical studies and practical experiences in power systems, electricity market by itself cannot create an effective condition for optimal investment in generation capacity (GC) expansion. On the other hand, the political, social, and economic consequences of shortage of power generation are inevitable under any condition. Thus, several incentives have been introduced to support investment in GC. Currently, the capacity payment mechanism is used for this purpose in the Iranian power market. In addition, the mechanism, along with its benefits, is suffering from some inadequacies and inefficiencies. The present study aimed to introduce Iranian power market and the specifications of the capacity mechanism used in this market. Accordingly, a new incentive called ‘Capacity Certificate’ which has been adopted for Iranian power market is modelled and analysed, along with explaining its characteristics. Regarding the advantage of system dynamics, the effect of this mechanism on the long‐term performance of the power market was evaluated from the perspective of the GC expansion and was compared with the capacity payment mechanism. The results revealed that using the capacity certificate mechanism in Iranian power market can be considered as a step forward toward a better system reserve and lower cost.