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Equilibrium supply security in a multinational electricity market with renewable production

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  • Tangeras, T.

Abstract

An increasing reliance on solar and wind power has raised concern about system ability to consistently satisfy electricity demand. This paper examines countries' unilateral incentives to achieve supply security through capacity reserves and market integration in a multinational electricity market. Capacity reserves protect consumers against blackouts and extreme prices, but distort consumption and investment. Market integration alleviates supply constraints, but requires costly network reinforcement. Capacity reserves can be up- or downward distorted, but network investment is always insufficient in equilibrium. Capacity reserves are smaller when there are financial markets or when dispatched solely to resolve domestic supply constraints.

Suggested Citation

  • Tangeras, T., 2017. "Equilibrium supply security in a multinational electricity market with renewable production," Cambridge Working Papers in Economics 1716, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1716
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    References listed on IDEAS

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    Cited by:

    1. Zhenyu Zhao & Huijia Yang, 2020. "Regional Security Assessment of Integrated Energy Systems with Renewables in China: A Grid-Connected Perspective," Sustainability, MDPI, vol. 12(24), pages 1-18, December.
    2. Persson, Lars & Tangerås, Thomas, 2018. "Transmission Network Investment across National Borders: The Liberalized Nordic Electricity Market," Working Paper Series 1242, Research Institute of Industrial Economics.
    3. Bastos, João Pedro & Cunha, Gabriel & Barroso, Luiz Augusto & Aquino, Thereza, 2018. "Reliability mechanism design: An economic approach to enhance adequate remuneration and enable efficient expansion," Energy, Elsevier, vol. 158(C), pages 1150-1159.
    4. Xie, Bai-Chen & Yang, Yan-Shen & Chen, Xian-Peng, 2025. "Effect of grid expansion on interregional power dispatch towards carbon neutrality based on market equilibrium model," Energy Economics, Elsevier, vol. 151(C).
    5. Holmberg, Pär & Ritz, Robert A., 2019. "Capacity Mechanisms and the Technology Mix in Competitive Electricity Markets," Working Paper Series 1292, Research Institute of Industrial Economics.

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    Keywords

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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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