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A coordinated strategic reserve to safeguard the European energy transition

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  • Neuhoff, Karsten
  • Diekmann, Jochen
  • Kunz, Friedrich
  • Rüster, Sophia
  • Schill, Wolf-Peter
  • Schwenen, Sebastian

Abstract

In Germany and beyond, various capacity mechanisms are currently being discussed with a view to improving the security of electricity supply. One of these mechanisms is a strategic reserve that retains generation capacity for use in times of critical supply shortage. We argue that strategic reserves have specific advantages compared to other capacity mechanisms in the context of the European energy transition. To date, however, the debate on capacity mechanisms has largely been restricted to national contexts. Against this background, we discuss the feasibility and potential benefits of coordinated cross-border strategic reserves to safeguard electricity supply and aid the energy transition in Germany and neighboring countries at large. Setting aside strategic reserve capacity which is deployed only in the event of extreme supply shortages could improve the security of electricity supply without distorting the EU's internal electricity market. In addition, overall costs may decrease when reserve procurement and activation are coordinated among countries, particularly if combined with flow-based market coupling.

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  • Neuhoff, Karsten & Diekmann, Jochen & Kunz, Friedrich & Rüster, Sophia & Schill, Wolf-Peter & Schwenen, Sebastian, 2016. "A coordinated strategic reserve to safeguard the European energy transition," Utilities Policy, Elsevier, vol. 41(C), pages 252-263.
  • Handle: RePEc:eee:juipol:v:41:y:2016:i:c:p:252-263
    DOI: 10.1016/j.jup.2016.02.002
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    Cited by:

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    3. Medick, Jakob & Teichmann, Isabel & Kemfert, Claudia, 2018. "Hydrothermal carbonization (HTC) of green waste: Mitigation potentials, costs, and policy implications of HTC coal in the metropolitan region of Berlin, Germany," Energy Policy, Elsevier, vol. 123(C), pages 503-513.
    4. Tangerås, Thomas P., 2018. "Equilibrium supply security in a multinational electricity market with renewable production," Energy Economics, Elsevier, vol. 72(C), pages 416-435.
    5. Zimmermann, Florian & Bublitz, Andreas & Keles, Dogan & Fichtner, Wolf, 2019. "Cross-border effects of capacity remuneration mechanisms: The Swiss case," Working Paper Series in Production and Energy 35, Karlsruhe Institute of Technology (KIT), Institute for Industrial Production (IIP).
    6. Holmberg, P. & Tangerås, T., 2021. "Strategic Reserves versus Market-wide Capacity Mechanisms," Cambridge Working Papers in Economics 2132, Faculty of Economics, University of Cambridge.
    7. Chyong, C. & Pollitt, M. & Cruise, R., 2019. "Can wholesale electricity prices support “subsidy-free” generation investment in Europe?," Cambridge Working Papers in Economics 1955, Faculty of Economics, University of Cambridge.
    8. Croonenbroeck, Carsten & Palm, Marcel, 2020. "A spatio-temporal Durbin fixed effects IV-Model for ENTSO-E electricity flows analysis," Renewable Energy, Elsevier, vol. 148(C), pages 205-213.
    9. Karsten Neuhoff, Sophia Wolter and Sebastian Schwenen, 2016. "Power markets with Renewables: New perspectives for the European Target Model," The Energy Journal, International Association for Energy Economics, vol. 0(Bollino-M).
    10. Jakob Medick & Isabel Teichmann & Claudia Kemfert, 2017. "Hydrothermal Carbonization (HTC) of Green Waste: An Environmental and Economic Assessment of HTC Coal in the Metropolitan Region of Berlin, Germany," Discussion Papers of DIW Berlin 1690, DIW Berlin, German Institute for Economic Research.
    11. 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).
    12. Karol Tucki & Olga Orynycz & Andrzej Wasiak & Antoni Świć & Wojciech Dybaś, 2019. "Capacity Market Implementation in Poland: Analysis of a Survey on Consequences for the Electricity Market and for Energy Management," Energies, MDPI, Open Access Journal, vol. 12(5), pages 1-16, March.
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    More about this item

    Keywords

    Capacity mechanisms; Strategic reserve; Energy transition;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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