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Impact of Electricity Market Designs on Investments in Flexibility Options

In: The Future European Energy System

Author

Listed:
  • Christoph Fraunholz

    (Institute for Industrial Production (IIP), Karlsruhe Institute of Technology (KIT))

  • Andreas Bublitz

    (Institute for Industrial Production (IIP), Karlsruhe Institute of Technology (KIT))

  • Dogan Keles

    (Institute for Industrial Production (IIP), Karlsruhe Institute of Technology (KIT))

  • Wolf Fichtner

    (Institute for Industrial Production (IIP), Karlsruhe Institute of Technology (KIT))

Abstract

Against the background of several European countries implementing capacity remuneration mechanisms (CRM) as an extension to the energy-only market (EOM), this chapter provides a quantitative assessment of the long-term cross-border effects of CRMs in the European electricity system. For this purpose, several scenario analyses are carried out using the electricity market model PowerACE. Three different market design settings are investigated, namely, a European EOM, national CRM policies, and a coordinated CRM. The introduction of CRMs proves to be an effective measure substantially shifting investment incentives toward the countries implementing the mechanisms. However, CRMs increase generation adequacy also in the respective neighboring countries, indicating that free riding occurs. A coordinated approach therefore seems preferable in terms of both lower wholesale electricity prices and generation adequacy.

Suggested Citation

  • Christoph Fraunholz & Andreas Bublitz & Dogan Keles & Wolf Fichtner, 2021. "Impact of Electricity Market Designs on Investments in Flexibility Options," Springer Books, in: Dominik Möst & Steffi Schreiber & Andrea Herbst & Martin Jakob & Angelo Martino & Witold-Roger Pogan (ed.), The Future European Energy System, chapter 0, pages 199-218, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-60914-6_11
    DOI: 10.1007/978-3-030-60914-6_11
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    Cited by:

    1. Fraunholz, Christoph & Miskiw, Kim K. & Kraft, Emil & Fichtner, Wolf & Weber, Christoph, 2021. "On the role of risk aversion and market design in capacity expansion planning," Working Paper Series in Production and Energy 62, Karlsruhe Institute of Technology (KIT), Institute for Industrial Production (IIP).

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