To ensure security of supply and incentivize reliable investment in generation capacity, capacity markets (CMs) have been implemented or are being considered. However, demand response (DR) and electrical energy storage (EES) also contribute to system adequacy. In this paper, we analyse the change in the need for a CM if DR and EES are available, in the presence of a growing portfolio share of intermittent renewable energy sources electricity (RES-E). We present a novel hybrid electricity market model of the transition to a low-carbon electricity system which uses optimization for short-term market operations and agent-based simulation of long-term decisions. DR and EES may significantly reduce the risk of shortages in an energy-only market, even if investment decisions are myopic, like in our model, as compared to an energy-only market without flexibility options. We also present a novel mechanism for contribution of EES to the CM. This reduces the cost of the CM and improves the business case for EES. In our model, DR and EES achieve almost the same improvement of security of supply as a CM, but they do so at a lower cost. Therefore, the case for a centralized CM is weakened in a system with even a limited share of DR and medium-term EES, as presented in our model. These results depend on the duration of scarcity events and the cost of EES and DR. Refinement of the model representation will be required to extrapolate these conclusions to real markets with other types of DR, EES and CMs.

We present an approach to simulate climate and energy policy for the EU, using a flexible and modular agent-based modelling approach and a toolbox, called the Energy Modelling Laboratory (EMLab). The paper shortly reviews core challenges and approaches for modelling climate and energy policy in light of the energy transition. Afterwards, we present an agent-based model of investment in power generation that has addressed a variety of European energy policy questions. We describe the development of a flexible model core as well as modules on carbon and renewables policies, capacity mechanisms, investment behaviour and representation of intermittent renewables. We present an overview of modelling results, ongoing projects, a case study on current reforms of the EU ETS, and we show their relevance in the EU context.