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Market design for generation adequacy: Healing causes rather than symptoms

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Roques, Fabien A.

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Abstract

This paper argues that electricity market reform - particularly the need for complementary mechanisms to remunerate capacity - need to be analysed in the light of the local regulatory and institutional environment. If there is a lack of investment, the priority should be to identify the roots of the problem. The lack of demand-side response, short-term reliability management procedures and non-market ancillary services provision often undermine market reflective scarcity pricing and distort long-term investment incentives. The introduction of a capacity mechanism should come as an optional supplement to wholesale and ancillary markets improvements. Priority reforms should focus on encouraging demand-side responsiveness and reducing scarcity price distortions introduced by balancing and congestion management through better dialog between network engineers and market operators.

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Publisher Info
Article provided by Elsevier in its journal Utilities Policy.

Volume (Year): 16 (2008)
Issue (Month): 3 (September)
Pages: 171-183
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Handle: RePEc:eee:juipol:v:16:y:2008:i:3:p:171-183

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

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Gert Brunekreeft, 2005. "Policy Uncertainty and Supply Adequacy in Electric Power Markets," Oxford Review of Economic Policy, Oxford University Press, vol. 21(1), pages 111-127, Spring.
  2. Hung-po Chao & Shmuel S Oren & Alex Papalexopoulos & Dejan J Sobajic & Robert Wilson, 2005. "Interface between Engineering and Market Operations in Restructured Electricity Markets," Levine's Bibliography 784828000000000222, UCLA Department of Economics. [Downloadable!]
  3. Paul L. Joskow, 2006. "Competitive Electricity Markets And Investment In New Generating Capacity," Working Papers 0609, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research. [Downloadable!]
  4. Roques, Fabien A. & Newbery, David M. & Nuttall, William J., 2008. "Fuel mix diversification incentives in liberalized electricity markets: A Mean-Variance Portfolio theory approach," Energy Economics, Elsevier, vol. 30(4), pages 1831-1849, July. [Downloadable!] (restricted)
  5. Paul L. Joskow & Jean Tirole, 2004. "Retail Electricity Competition," NBER Working Papers 10473, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Joskow, Paul L & Tirole, Jean, 2007. "Reliability and Competitive Electricity Markets," CEPR Discussion Papers 6121, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Neuhoff, K. & de Vries, L., 2004. "'Insufficient Incentives for Investment in Electricity Generation’," Cambridge Working Papers in Economics 0428, Faculty of Economics, University of Cambridge. [Downloadable!]
    Other versions:
  8. Glachant, J.M. & Saguan, M., 2007. "An Institutional Frame to Compare Alternative Market Designs in EU Electricity Balancing," Cambridge Working Papers in Economics 0724, Faculty of Economics, University of Cambridge. [Downloadable!]
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  9. Ford, Andrew, 1999. "Cycles in competitive electricity markets: a simulation study of the western United States," Energy Policy, Elsevier, vol. 27(11), pages 637-658, October. [Downloadable!] (restricted)
  10. Green, R., 2004. "‘Did English Generators Play Cournot? Capacity Withholding in the Electricity Pool’," Cambridge Working Papers in Economics 0425, Faculty of Economics, University of Cambridge. [Downloadable!]
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  11. Crampes , C. & Fabra , N., 2005. "The Spanish Electricity Industry: Plus ça change …," Cambridge Working Papers in Economics 0502, Faculty of Economics, University of Cambridge. [Downloadable!]
  12. Creti, Anna & Fabra, Natalia, 2007. "Supply security and short-run capacity markets for electricity," Energy Economics, Elsevier, vol. 29(2), pages 259-276, March. [Downloadable!] (restricted)
  13. Batlle, Carlos & Vazquez, Carlos & Rivier, Michel & Perez-Arriaga, Ignacio J., 2007. "Enhancing power supply adequacy in Spain: Migrating from capacity payments to reliability options," Energy Policy, Elsevier, vol. 35(9), pages 4545-4554, September. [Downloadable!] (restricted)
  14. Fabien A. Roques & David M. Newbery & William J. Nuttall, 2005. "Investment Incentives and Electricity Market Design: the British Experience," Review of Network Economics, Concept Economics, vol. 4(2), pages 93-128, June. [Downloadable!]
  15. Finon, Dominique & Meunier, Guy & Pignon, Virginie, 2008. "The social efficiency of long-term capacity reserve mechanisms," Utilities Policy, Elsevier, vol. 16(3), pages 202-214, September. [Downloadable!] (restricted)
  16. Bidwell, Miles, 2005. "Reliability Options: A Market-Oriented Approach to Long-Term Adequacy," The Electricity Journal, Elsevier, vol. 18(5), pages 11-25, June. [Downloadable!] (restricted)
  17. Peter Cramton & Steven Stoft, 2006. "The Convergence of Market Designs for Adequate Generating Capacity," Papers of Peter Cramton 06mdfra, University of Maryland, Department of Economics - Peter Cramton, revised 2006. [Downloadable!]
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