  We show how to value both variable generation and energy storage to enable
them to be integrated fairly and optimally into electricity capacity markets.
We develop theory based on balancing expected energy unserved against costs of
capacity procurement, and in which the optimal procurement is that necessary to
meet an appropriate reliability standard. For conventional generation the
theory reduces to that already in common use. Further the valuation of both
variable generation and storage coincides with the traditional risk-based
approach based on equivalent firm capacity. The determination of the equivalent
firm capacity of storage requires particular care; this is due both to the
flexibility with which storage added to an existing system may be scheduled,
and also because, when any resource is added to an existing system, storage
already within that system may be flexibly rescheduled. We illustrate the
theory with an example based on the GB system.
