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Cross-border effects of capacity mechanisms: Do uncoordinated market design changes contradict the goals of the European market integration?

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  • Meyer, Roland
  • Gore, Olga

Abstract

This paper analyses cross-border effects of a strategic reserve (SR) and reliability options (ROs) based on a two-country simulation model. Using a game-theoretic approach, the countries' policy options for capacity remuneration mechanisms (CRMs) are analysed with respect to welfare and distribution effects. An SR tends to narrow down the market, while ROs intensify price competition. However, cross-border effects are most likely negative for consumers and producers in total in the case of a unilateral implementation of a CRM, and market design changes should be coordinated.

Suggested Citation

  • Meyer, Roland & Gore, Olga, 2015. "Cross-border effects of capacity mechanisms: Do uncoordinated market design changes contradict the goals of the European market integration?," Energy Economics, Elsevier, vol. 51(C), pages 9-20.
    • Handle: RePEc:eee:eneeco:v:51:y:2015:i:c:p:9-20
    DOI: 10.1016/j.eneco.2015.06.011
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    References listed on IDEAS

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    More about this item

    Keywords

    Market design; Generation adequacy; Capacity mechanisms; Internal European Market;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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