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Provision of operating reserve capacity: Principles and practices on the Nordic Electricity Market

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  • Amundsen, Eirik S.
  • Bergman, Lars

Abstract

System reliability is a key aspect of electricity supply, and the ability to maintain system reliability this is an important aspect of a liberalised electricity market. But system reliability can be ensured only if there is sufficient operating reserve capacity at all times. In a liberalised electricity market the provision of operating reserve capacity is a matter of incentives that should be formulated on basic principles of economic behaviour. The Nordic electricity market, comprising the integrated Danish, Finnish, Norwegian, and Swedish electricity markets, has worked well from a system reliability point of view. A key factor behind this favourable outcome is that the incentives for keeping sufficient operating reserve capacity have been strong enough. The reason for this is an adequate institutional design. More precisely the set of markets that is commonly called “the electricity market” includes both regulation and capacity markets, and rules and regulations are such that these markets are well-functioning.

Suggested Citation

  • Amundsen, Eirik S. & Bergman, Lars, 2007. "Provision of operating reserve capacity: Principles and practices on the Nordic Electricity Market," MPRA Paper 10861, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:10861
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    File URL: https://mpra.ub.uni-muenchen.de/10861/1/MPRA_paper_10861.pdf
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    References listed on IDEAS

    as
    1. Nils-Henrik M. von der Fehr, Eirik S. Amundsen and Lars Bergman, 2005. "The Nordic Market: Signs of Stress?," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 71-98.
    2. Cramton, Peter & Stoft, Steven, 2005. "A Capacity Market that Makes Sense," The Electricity Journal, Elsevier, vol. 18(7), pages 43-54.
    3. Amundsen, Eirik S. & Bergman, Lars, 2007. "Integration of multiple national markets for electricity: The case of Norway and Sweden," Energy Policy, Elsevier, vol. 35(6), pages 3383-3394, June.
    4. Amundsen, Eirik S. & Bergman, Lars, 2006. "Why has the Nordic electricity market worked so well?," Utilities Policy, Elsevier, vol. 14(3), pages 148-157, September.
    5. Abbott, Malcolm, 2001. "Is the Security of Electricity Supply a Public Good?," The Electricity Journal, Elsevier, vol. 14(7), pages 31-33.
    6. Hobbs, Benjamin F. & Iñón, Javier & Stoft, Steven E., 2001. "Installed Capacity Requirements and Price Caps: Oil on the Water, or Fuel on the Fire?," The Electricity Journal, Elsevier, vol. 14(6), pages 23-34, July.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Pär Holmberg & Thomas Tangerås, 2021. "Strategic Reserves versus Market-wide Capacity Mechanisms," Working Papers EPRG2109, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    2. Farahmand, H. & Doorman, G.L., 2012. "Balancing market integration in the Northern European continent," Applied Energy, Elsevier, vol. 96(C), pages 316-326.

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    More about this item

    Keywords

    Nordic electricity market; operating reserve capacity; peak capacity; capacity market;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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