Generation capacity adequacy in interdependent electricity markets
This paper deals with the practical problems related to long-term security of supply in regional electricity markets with transmission constraints. Differences between regulatory policies and market designs in terms of generation adequacy policies may distort the normal functioning of the neighboring markets, as well as the reliability of supply. We test the effect of heterogeneous regulatory design between two interdependent markets: energy-only market, price-capped market without capacity mechanisms and price-capped markets with forward capacity contracts obligation. We rely on a long-term market simulation model in system dynamics that characterizes expansion decision in a competitive regime. The results show that differences in market designs affect both price and reliability of supply in the two markets. We examine both the short and long terms effect, and how free-riding may occur where capacity adequacy policies are adopted in one market but not the other. The main finding is that the lack of harmonization between local markets in policies to ensure capacity adequacy may lead to undesirable side effects.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Assili, Mohsen & Javidi D.B., M. Hossein & Ghazi, Reza, 2008. "An improved mechanism for capacity payment based on system dynamics modeling for investment planning in competitive electricity environment," Energy Policy, Elsevier, vol. 36(10), pages 3703-3713, October.
- Paul Joskow & Edward Kahn, 2001.
"A Quantitative Analysis of Pricing Behavior in California's Wholesale Electricity Market During Summer 2000,"
NBER Working Papers
8157, National Bureau of Economic Research, Inc.
- Paul L. Joskow & Edward Kohn, 2002. "A Quantitative Analysis of Pricing Behavior in California's Wholesale Electricity Market During Summer 2000," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 1-35.
- Joskow, P. & Edward Kahn, 2002. "A Quantitative Analysis of Pricing Behavior In California’s Wholesale Electricity Market During Summer 2000," Cambridge Working Papers in Economics 0211, Faculty of Economics, University of Cambridge.
- Finon, Dominique & Pignon, Virginie, 2008. "Electricity and long-term capacity adequacy: The quest for regulatory mechanism compatible with electricity market," Utilities Policy, Elsevier, vol. 16(3), pages 143-158, September.
- De Vries, Laurens J., 2007. "Generation adequacy: Helping the market do its job," Utilities Policy, Elsevier, vol. 15(1), pages 20-35, March.
- Olsina, Fernando & Garces, Francisco & Haubrich, H.-J., 2006. "Modeling long-term dynamics of electricity markets," Energy Policy, Elsevier, vol. 34(12), pages 1411-1433, August.
- Bunn, Derek W. & Larsen, Erik R., 1992. "Sensitivity of reserve margin to factors influencing investment behaviour in the electricity market of England and Wales," Energy Policy, Elsevier, vol. 20(5), pages 420-429, May.
- de Vries, Laurens & Heijnen, Petra, 2008. "The impact of electricity market design upon investment under uncertainty: The effectiveness of capacity mechanisms," Utilities Policy, Elsevier, vol. 16(3), pages 215-227, September.
- Ochoa, Patricia, 2007. "Policy changes in the Swiss electricity market: Analysis of likely market responses," Socio-Economic Planning Sciences, Elsevier, vol. 41(4), pages 336-349, December.
- Sterman, John D., 1988. "Modeling the formation of expectations : The history of energy demand forecasts," International Journal of Forecasting, Elsevier, vol. 4(2), pages 243-259.
- Ford, Andrew & Vogstad, Klaus & Flynn, Hilary, 2007. "Simulating price patterns for tradable green certificates to promote electricity generation from wind," Energy Policy, Elsevier, vol. 35(1), pages 91-111, January.
- 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.
When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:39:y:2011:i:6:p:3128-3143. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.