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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
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    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.

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    File URL: http://mpra.ub.uni-muenchen.de/10861/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10861.

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    Date of creation: 2007
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    Publication status: Published in Competition and Regulation in Network Industries (Intersentia) 1.Vol. 2(2007): pp. 73-98
    Handle: RePEc:pra:mprapa:10861

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    Keywords: Nordic electricity market; operating reserve capacity; peak capacity; capacity market;

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    1. von der Fehr, N-H.M. & Amundsen , E.S. & Bergman, L., 2005. "The Nordic Market: Signs of Stress?," Cambridge Working Papers in Economics 0525, Faculty of Economics, University of Cambridge.
    2. Amundsen, Eirik S. & Bergman, Lars, 2006. "Why has the Nordic electricity market worked so well?," Utilities Policy, Elsevier, Elsevier, vol. 14(3), pages 148-157, September.
    3. Cramton, Peter & Stoft, Steven, 2005. "A Capacity Market that Makes Sense," The Electricity Journal, Elsevier, Elsevier, vol. 18(7), pages 43-54.
    4. 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, Elsevier, vol. 14(6), pages 23-34, July.
    5. Abbott, Malcolm, 2001. "Is the Security of Electricity Supply a Public Good?," The Electricity Journal, Elsevier, Elsevier, vol. 14(7), pages 31-33.
    6. Amundsen, Eirik S. & Bergman, Lars, 2007. "Integration of multiple national markets for electricity: The case of Norway and Sweden," Energy Policy, Elsevier, Elsevier, vol. 35(6), pages 3383-3394, June.
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