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Different Approaches to Supply Adequacy in Electricity Markets

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  • Rosellon, Juan

Abstract

This paper studies the electricity market design long run problem of ensuring enough generation capacity to meet future demand (resource adequacy). Reform processes worldwide have shown that it is difficult for the market alone to provide incentives to attract enough investment in capacity reserves due to technical and institutional features. We study several measures that have been proposed internationally to cope with this problem including strategic reserves, capacity payments, capacity requirements, and call options. The analytical and practical strengths and weaknesses of each approach are discussed .

Suggested Citation

  • Rosellon, Juan, 2006. "Different Approaches to Supply Adequacy in Electricity Markets," MPRA Paper 21944, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:21944
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    File URL: https://mpra.ub.uni-muenchen.de/21944/1/MPRA_paper_21944.pdf
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    References listed on IDEAS

    as
    1. Fabien Roques & David M. Newbery & William J. Nuttall, 2004. "Generation Adequacy and Investment Incentives in Britain: from the Pool to NETA," Working Papers EP58, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    2. MURPHY, Frederic & SMEERS, Yves, 2002. "Generation capacity expansion in imperfectly competitive restructured electricity markets," LIDAM Discussion Papers CORE 2002069, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Paul L. Joskow, 2003. "The Difficult Transition to Competitive Electricity Markets in the U.S," Working Papers 0308, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
    4. David M. Newbery, 1995. "Power Markets and Market Power," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 39-66.
    5. Bushnell, James, 2005. "Electricity Resource Adequacy: Matching Policies and Goals," The Electricity Journal, Elsevier, vol. 18(8), pages 11-21, October.
    6. Robert Wilson, 2002. "Architecture of Power Markets," Econometrica, Econometric Society, vol. 70(4), pages 1299-1340, July.
    7. Hobbs, Benjamin F. & Iñón, Javier & Stoft, Steven E., 2001. "Installed Capacity Requirements and Price Caps: Oil on the Water, or Fuel on the Fire?," The Electricity Journal, Elsevier, vol. 14(6), pages 23-34, July.
    8. Severin Borenstein, 2002. "The Trouble With Electricity Markets: Understanding California's Restructuring Disaster," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 191-211, Winter.
    9. Chao, Hung-Po & Wilson, Robert, 2002. "Multi-dimensional Procurement Auctions for Power Reserves: Robust Incentive-Compatible Scoring and Settlement Rules," Journal of Regulatory Economics, Springer, vol. 22(2), pages 161-183, September.
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    More about this item

    Keywords

    Supply adequacy; electricity markets;

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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