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Missing Money and Missing Markets: Reliability, Capacity Auctions and Interconnectors

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  • David Newbery

Abstract

In the energy trilemma of reliability, sustainability and affordability, politicians treat reliability as over-riding. The EU assumes the energy-only Target Electricity Model will deliver reliability but the UK argues that a capacity remuneration mechanism is needed. This paper argues that capacity auctions tend to over-procure capacity, exacerbating the missing money problem they were designed to address. The bias is further exacerbated by failing to address some of the missing market problems also neglected in the debate. It examines the case for, criticisms of, and outcome of the first GB capacity auction and problems of trading between different capacity markets.

Suggested Citation

  • David Newbery, 2015. "Missing Money and Missing Markets: Reliability, Capacity Auctions and Interconnectors," Cambridge Working Papers in Economics 1513, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1513
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    More about this item

    Keywords

    capacity markets; renewables; procurement volume; interconnectors;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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