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How to correct for long-term externalities of large-scale wind power development by a capacity mechanism?

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  • Cepeda, Mauricio
  • Finon, Dominique

Abstract

This paper deals with the practical problems related to long-term security of supply in electricity markets in the presence of large-scale wind power development. The success of recent renewable promotion schemes adds a new dimension to ensuring long-term security of supply: it necessitates designing second-best policies to prevent large-scale wind power development from distorting long-run equilibrium prices and investments in conventional generation and in particular in peaking units. We rely upon a long-term simulation model which simulates electricity market players' investment decisions in a market regime and incorporates large-scale wind power development in the presence of either subsidized or market driven development scenarios. We test the use of capacity mechanisms to compensate for long-term effects of large-scale wind power development on prices and reliability of supply. The first finding is that capacity mechanisms can help to reduce the social cost of large scale wind power development in terms of decrease of loss of load probability. The second finding is that, in a market-based wind power deployment without subsidy, wind generators are penalised for insufficient contribution to the long term system's reliability.

Suggested Citation

  • Cepeda, Mauricio & Finon, Dominique, 2013. "How to correct for long-term externalities of large-scale wind power development by a capacity mechanism?," Energy Policy, Elsevier, vol. 61(C), pages 671-685.
  • Handle: RePEc:eee:enepol:v:61:y:2013:i:c:p:671-685
    DOI: 10.1016/j.enpol.2013.06.046
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Hach, Daniel & Chyong, Chi Kong & Spinler, Stefan, 2016. "Capacity market design options: A dynamic capacity investment model and a GB case study," European Journal of Operational Research, Elsevier, vol. 249(2), pages 691-705.
    2. repec:eee:enepol:v:114:y:2018:i:c:p:465-481 is not listed on IDEAS
    3. repec:spr:orspec:v:40:y:2018:i:2:d:10.1007_s00291-018-0509-3 is not listed on IDEAS
    4. repec:eee:rensus:v:80:y:2017:i:c:p:341-351 is not listed on IDEAS
    5. Meyer, Roland & Gore, Olga, 2015. "Cross-border effects of capacity mechanisms: Do uncoordinated market design changes contradict the goals of the European market integration?," Energy Economics, Elsevier, vol. 51(C), pages 9-20.
    6. repec:eee:juipol:v:48:y:2017:i:c:p:76-91 is not listed on IDEAS
    7. repec:eee:enepol:v:111:y:2017:i:c:p:255-267 is not listed on IDEAS
    8. repec:eee:ecolec:v:141:y:2017:i:c:p:245-260 is not listed on IDEAS
    9. Petitet, Marie & Finon, Dominique & Janssen, Tanguy, 2017. "Capacity adequacy in power markets facing energy transition: A comparison of scarcity pricing and capacity mechanism," Energy Policy, Elsevier, vol. 103(C), pages 30-46.
    10. Glachant, Jean-Michel, 2016. "Tacking stock of the EU “Power Target Model”… and steering its future course," Energy Policy, Elsevier, vol. 96(C), pages 673-679.
    11. repec:eee:appene:v:214:y:2018:i:c:p:39-62 is not listed on IDEAS
    12. Wierzbowski, Michal & Filipiak, Izabela, 2017. "Enhanced operational reserve as a tool for development of optimal energy mix," Energy Policy, Elsevier, vol. 102(C), pages 602-615.
    13. Bublitz, Andreas & Keles, Dogan & Zimmermann, Florian & Fraunholz, Christoph & Fichtner, Wolf, 2018. "A survey on electricity market design: Insights from theory and real-world implementations of capacity remuneration mechanisms," Working Paper Series in Production and Energy 27, Karlsruhe Institute of Technology (KIT), Institute for Industrial Production (IIP).
    14. Gore, Olga & Vanadzina, Evgenia & Viljainen, Satu, 2016. "Linking the energy-only market and the energy-plus-capacity market," Utilities Policy, Elsevier, vol. 38(C), pages 52-61.

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