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Market design and supply security in imperfect power markets

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  • Schwenen, Sebastian

Abstract

Supply security in imperfect power markets is modelled under different market designs. In a uniform price auction for electricity with two firms, strategic behaviour may leave firms offering too few capacities and unable to supply all realized demand. Market design that relies on capacity markets increases available generation capacities for sufficiently high capacity prices and consequently decreases energy prices. However, equilibrium capacity prices are non-competitive. Capacity markets can increase security of supply, but cannot mitigate market power, which is exercised in the capacity market instead of the energy market.

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  • Schwenen, Sebastian, 2014. "Market design and supply security in imperfect power markets," Energy Economics, Elsevier, vol. 43(C), pages 256-263.
    • Handle: RePEc:eee:eneeco:v:43:y:2014:i:c:p:256-263
    DOI: 10.1016/j.eneco.2014.02.012
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    Cited by:

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    3. Sirin, Selahattin Murat & Camadan, Ercument & Erten, Ibrahim Etem & Zhang, Alex Hongliang, 2023. "Market failure or politics? Understanding the motives behind regulatory actions to address surging electricity prices," Energy Policy, Elsevier, vol. 180(C).
    4. Mastropietro, Paolo & Herrero, Ignacio & Rodilla, Pablo & Batlle, Carlos, 2016. "A model-based analysis on the impact of explicit penalty schemes in capacity mechanisms," Applied Energy, Elsevier, vol. 168(C), pages 406-417.
    5. Mier, Mathias, 2021. "Efficient pricing of electricity revisited," Energy Economics, Elsevier, vol. 104(C).
    6. Surendra Kansara & Sachin Modgil & Rupesh Kumar, 2023. "Structural transformation of fuzzy analytical hierarchy process: a relevant case for Covid-19," Operations Management Research, Springer, vol. 16(1), pages 450-465, March.
    7. Brito-Pereira, Paulo & Rodilla, Pablo & Mastropietro, Paolo & Batlle, Carlos, 2022. "Self-fulfilling or self-destroying prophecy? The relevance of de-rating factors in modern capacity mechanisms," Applied Energy, Elsevier, vol. 314(C).
    8. Juha Teirilä and Robert A. Ritz, 2019. "Strategic Behaviour in a Capacity Market? The New Irish Electricity Market Design," The Energy Journal, International Association for Energy Economics, vol. 0(The New E).
    9. Tsaousoglou, Georgios & Petsinis, Konstantinos & Makris, Prodromos & Skoteinos, Iraklis & Efthymiopoulos, Nikolaos & Varvarigos, Emmanouel, 2021. "A shortage pricing mechanism for capacity remuneration with simulation for the Greek electricity balancing market," Utilities Policy, Elsevier, vol. 71(C).
    10. Bublitz, Andreas & Keles, Dogan & Zimmermann, Florian & Fraunholz, Christoph & Fichtner, Wolf, 2018. "A survey on electricity market design: Insights from theory and real-world implementations of capacity remuneration mechanisms," Working Paper Series in Production and Energy 27, Karlsruhe Institute of Technology (KIT), Institute for Industrial Production (IIP).
    11. Teirila, J., 2017. "Market Power in the Capacity Market? The Case of Ireland," Cambridge Working Papers in Economics 1727, Faculty of Economics, University of Cambridge.
    12. Bublitz, Andreas & Keles, Dogan & Zimmermann, Florian & Fraunholz, Christoph & Fichtner, Wolf, 2019. "A survey on electricity market design: Insights from theory and real-world implementations of capacity remuneration mechanisms," Energy Economics, Elsevier, vol. 80(C), pages 1059-1078.

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