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Electricity and long-term capacity adequacy: The quest for regulatory mechanism compatible with electricity market

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  • Finon, Dominique
  • Pignon, Virginie
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    Abstract

    This paper deals with theoretical aspects of long-term electricity supply security. Market prices and contractual arrangements on the physical and financial electricity markets do not allow the creation of sufficient incentives to invest in adequate capacity for guaranteeing the appropriate level of supply in every circumstance. Long-term security of supply by capacity adequacy must be conceptualised as a public good. Alternative solutions to reach capacity adequacy having been adopted in different markets are successively considered: public procurement of strategic reserves, capacity payments, capacity obligations with tradable rights. Each presents theoretical limits and practical drawbacks when implemented in complex markets. That brings out the interest of a mechanism of centralised auctions for forward capacity contracts (or reliability options); it combines controls by quantity and by price while stabilising investment in peak power plants and is compatible with energy and reserves markets, which is not the case with the three other mechanisms.

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    Bibliographic Info

    Article provided by Elsevier in its journal Utilities Policy.

    Volume (Year): 16 (2008)
    Issue (Month): 3 (September)
    Pages: 143-158

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    Handle: RePEc:eee:juipol:v:16:y:2008:i:3:p:143-158

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    Web page: http://www.elsevier.com/locate/inca/30478

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    1. Paul L. Joskow & Jean Tirole, 2004. "Reliability and Competitive Electricity Markets," NBER Working Papers 10472, National Bureau of Economic Research, Inc.
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    10. Hughes, William R. & Parece, Andrew, 2002. "The Economics of Price Spikes in Deregulated Power Markets," The Electricity Journal, Elsevier, vol. 15(6), pages 31-44, July.
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    Cited by:
    1. Sakellaris, Kostis, 2009. "The Greek Capacity Adequacy Mechanism: Design, Incentives, Strategic Behavior and Regulatory Remedies," MPRA Paper 24642, University Library of Munich, Germany.
    2. Cepeda, Mauricio & Finon, Dominique, 2013. "How to correct for long-term externalities of large-scale wind power development by a capacity mechanism?," Energy Policy, Elsevier, vol. 61(C), pages 671-685.
    3. de Vries, Laurens & Heijnen, Petra, 2008. "The impact of electricity market design upon investment under uncertainty: The effectiveness of capacity mechanisms," Utilities Policy, Elsevier, vol. 16(3), pages 215-227, September.
    4. Cepeda, Mauricio & Finon, Dominique, 2011. "Generation capacity adequacy in interdependent electricity markets," Energy Policy, Elsevier, vol. 39(6), pages 3128-3143, June.
    5. Elberg, Christina & Kranz, Sebastian, 2013. "Capacity Mechanisms and Effects on Market Structure," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79811, Verein für Socialpolitik / German Economic Association.
    6. Cédric Clastres & Catherine Locatelli, 2012. "European Union energy security: the challenges of liberalisation in a risk-prone international environment Society," Post-Print halshs-00787123, HAL.
    7. Cepeda, Mauricio & Saguan, Marcelo & Finon, Dominique & Pignon, Virginie, 2009. "Generation adequacy and transmission interconnection in regional electricity markets," Energy Policy, Elsevier, vol. 37(12), pages 5612-5622, December.
    8. Vincent Rious, Fabien Roques and Yannick Perez, 2012. "Which electricity market design to encourage the development of demand response?," RSCAS Working Papers 2012/12, European University Institute.
    9. Chen, Fung-Fei & Chou, Seng-Cho & Lu, Tai-Ken, 2013. "Scenario analysis of the new energy policy for Taiwan's electricity sector until 2025," Energy Policy, Elsevier, vol. 61(C), pages 162-171.
    10. Finon, Dominique & Cepeda, Mauricio, 2013. "How to correct long-term system externality of large scale windpower development by a capacity mechanism?," Economics Papers from University Paris Dauphine 123456789/13149, Paris Dauphine University.
    11. Nagl, Stephan & Fürsch, Michaela & Paulus, Moritz & Richter, Jan & Trüby, Johannes & Lindenberger, Dietmar, 2011. "Energy policy scenarios to reach challenging climate protection targets in the German electricity sector until 2050," Utilities Policy, Elsevier, vol. 19(3), pages 185-192.
    12. Paulus, Moritz & Grave, Katharina & Lindenberger, Dietmar, 2011. "A methodology to estimate security of supply in electricity generation: results for Germany until 2030 given a high level of intermittent electricity feed-in," EWI Working Papers 2011-10, Energiewirtschaftliches Institut an der Universitaet zu Koeln.
    13. Jamasb, Tooraj & Pollitt, Michael, 2008. "Security of supply and regulation of energy networks," Energy Policy, Elsevier, vol. 36(12), pages 4584-4589, December.
    14. Finon, Dominique, 2013. "Can we reconcile different capacity adequacy policies with an integrated electricity market?," Economics Papers from University Paris Dauphine 123456789/13152, Paris Dauphine University.

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