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Market Design for Generation Adequacy: Healing Causes rather than Symptoms

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Author Info
Roques, F.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 uncompetitive ancillary services procurement 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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File URL: http://www.econ.cam.ac.uk/dae/repec/cam/pdf/cwpe0821&EPRG0810.pdf
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Publisher Info
Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0821.

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Length: 24
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:cam:camdae:0821

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Web page: http://www.econ.cam.ac.uk/index.htm

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Related research
Keywords: electricity market; generation adequacy; market design; capacity mechanism.;

Other versions of this item:

Find related papers by JEL classification:
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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References listed on IDEAS
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. Joskow, Paul L & Tirole, Jean, 2007. "Reliability and Competitive Electricity Markets," CEPR Discussion Papers 6121, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. 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!]
    Other versions:
  6. 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!]
    Other versions:
  7. 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)
  8. 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)
  9. 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)
  10. 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)
  11. Paul L. Joskow & Jean Tirole, 2004. "Retail Electricity Competition," NBER Working Papers 10473, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  12. 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:
  13. 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)
  14. 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!]
  15. 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)
  16. 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!]
  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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