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Impact of Coordinated Capacity Mechanisms on the European Power Market

Author

Listed:
  • Michael Bucksteeg
  • Stephan Spiecker
  • Christoph Weber

    (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen (Campus Essen))

Abstract

There is an ongoing debate on the introduction of capacity markets in most European countries while a few of them have already established capacity markets. Since the implementation of independent national capacity markets is not in line with the target of a pan-European internal electricity market we investigate the impacts of uncoordinated capacity markets compared with coordinated capacity markets. A probabilistic approach for the determination of capacity requirements is proposed and a European electricity market model (E2M2s) is applied for evaluation. The model simultaneously optimizes investments and dispatch of power plants. Besides the impact on generation investments, market prices and system costs we analyse effects on production and security of supply. While coordinated capacity markets reveal high potentials for cross border synergies and cost savings, uncoordinated and unilateral implementations can lead to inefficiencies, in particular free riding effects and endanger security of supply due to adverse allocation of generation capacity.

Suggested Citation

  • Michael Bucksteeg & Stephan Spiecker & Christoph Weber, 2017. "Impact of Coordinated Capacity Mechanisms on the European Power Market," EWL Working Papers 1701, University of Duisburg-Essen, Chair for Management Science and Energy Economics, revised Jan 2017.
  • Handle: RePEc:dui:wpaper:1701
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    Cited by:

    1. Perica Ilak & Lin Herenčić & Ivan Rajšl & Sara Raos & Željko Tomšić, 2021. "Equilibrium Pricing with Duality-Based Method: Approach for Market-Oriented Capacity Remuneration Mechanism," Energies, MDPI, Open Access Journal, vol. 14(3), pages 1-19, January.
    2. Zappa, William & Junginger, Martin & van den Broek, Machteld, 2021. "Can liberalised electricity markets support decarbonised portfolios in line with the Paris Agreement? A case study of Central Western Europe," Energy Policy, Elsevier, vol. 149(C).

    More about this item

    Keywords

    capacity markets; system adequacy; market design;
    All these keywords.

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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