Stochastic Capacity Accreditation: Incentivizing Resource Adequacy under Weather Uncertainty

Abstract

High penetrations of variable renewable energy introduce significant resource adequacy challenges, particularly when weather-driven uncertainty affects renewable availability, electricity demand, and the effective capacity of thermal generators. Existing capacity credit accreditation methods often neglect these correlated weather effects, which may overstate firm capacity, distort long-term investment decisions, and weaken reliability outcomes in electricity market with price caps. This paper proposes a two-stage stochastic optimization framework for capacity accreditation that explicitly captures uncertainty in wind, solar, and temperature-dependent thermal derating. Using five years of ERCOT demand and renewable availability data, we compare the proposed stochastic capacity credit method with deterministic and average accreditation approaches, and quantify the impact of alternative accreditation methods on reliability, investment incentives, and the value of weather information. The results show that incorporating weather uncertainty yields more informative capacity credits and more reliable investment signals. In contrast, deterministic and averaged approaches can distort resource expansion decisions and produce materially worse reliability outcomes. These findings demonstrate the importance of explicitly accounting for weather uncertainty in capacity accreditation and long-term resource adequacy planning.