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Market design for generation adequacy: Healing causes rather than symptoms

  • Roques, Fabien A.

This paper argues that electricity market reform - particularly the need for complementary mechanisms to remunerate capacity - need to be analysed in the light of the local regulatory and institutional environment. If there is a lack of investment, the priority should be to identify the roots of the problem. The lack of demand-side response, short-term reliability management procedures and non-market ancillary services provision often undermine market reflective scarcity pricing and distort long-term investment incentives. The introduction of a capacity mechanism should come as an optional supplement to wholesale and ancillary markets improvements. Priority reforms should focus on encouraging demand-side responsiveness and reducing scarcity price distortions introduced by balancing and congestion management through better dialog between network engineers and market operators.

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Article provided by Elsevier in its journal Utilities Policy.

Volume (Year): 16 (2008)
Issue (Month): 3 (September)
Pages: 171-183

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Handle: RePEc:eee:juipol:v:16:y:2008:i:3:p:171-183
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30478

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  1. Joskow, Paul & Tirole, Jean, 2004. "Retail Electricity Competition," IDEI Working Papers 311, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Richard Green, 2004. "Did English Generators Play Cournot? Capacity withholding in the Electricity Pool," Working Papers 0410, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  3. Neuhoff, K. & de Vries, L., 2004. "'Insufficient Incentives for Investment in Electricity Generation’," Cambridge Working Papers in Economics 0428, Faculty of Economics, University of Cambridge.
  4. Gert Brunekreeft, 2005. "Policy Uncertainty and Supply Adequacy in Electric Power Markets," Oxford Review of Economic Policy, Oxford University Press, vol. 21(1), pages 111-127, Spring.
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  10. Brunekreeft, G. & McDaniel, T., 2005. "Policy uncertainty and supply adequacy in electric power," Discussion Paper 2005-006, Tilburg University, Tilburg Law and Economic Center.
  11. Roques Fabien A. & Newbery David M. & Nuttall William J., 2005. "Investment Incentives and Electricity Market Design: the British Experience," Review of Network Economics, De Gruyter, vol. 4(2), pages 1-36, June.
  12. Hung-po Chao & Shmuel S Oren & Alex Papalexopoulos & Dejan J Sobajic & Robert Wilson, 2005. "Interface between Engineering and Market Operations in Restructured Electricity Markets," Levine's Bibliography 784828000000000222, UCLA Department of Economics.
  13. Peter Cramton & Steven Stoft, 2006. "The Convergence of Market Designs for Adequate Generating Capacity," Papers of Peter Cramton 06mdfra, University of Maryland, Department of Economics - Peter Cramton, revised 2006.
  14. Roques, Fabien A. & Newbery, David M. & Nuttall, William J., 2008. "Fuel mix diversification incentives in liberalized electricity markets: A Mean-Variance Portfolio theory approach," Energy Economics, Elsevier, vol. 30(4), pages 1831-1849, July.
  15. Oren, Shmuel S., 2005. "Generation Adequacy via Call Options Obligations: Safe Passage to the Promised Land," The Electricity Journal, Elsevier, vol. 18(9), pages 28-42, November.
  16. 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.
  17. Finon, Dominique & Meunier, Guy & Pignon, Virginie, 2008. "The social efficiency of long-term capacity reserve mechanisms," Utilities Policy, Elsevier, vol. 16(3), pages 202-214, September.
  18. Bidwell, Miles, 2005. "Reliability Options: A Market-Oriented Approach to Long-Term Adequacy," The Electricity Journal, Elsevier, vol. 18(5), pages 11-25, June.
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