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Britain's electricity capacity auctions: lessons from Colombia and New England

Author

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  • Harbord, David
  • Pagnozzi, Marco

Abstract

The jury is still out on the need for government-organized capacity markets in order to achieve efficient long-run investments in electricity generation. When new capacity markets are introduced, however, it is important that they are well designed and take account of existing experience and previous design failures. Experience in both Colombia and New England provide a stark warning about the dangers of placing descending clock auctions at the center of electricity capacity markets. Among alternative auction design options, a sealed-bid auction is a better choice.

Suggested Citation

  • Harbord, David & Pagnozzi, Marco, 2014. "Britain's electricity capacity auctions: lessons from Colombia and New England," MPRA Paper 56224, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:56224
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    File URL: https://mpra.ub.uni-muenchen.de/56224/1/MPRA_paper_56224.pdf
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    References listed on IDEAS

    as
    1. Natalia Fabra & Nils‐Henrik Fehr & David Harbord, 2006. "Designing electricity auctions," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 23-46, March.
    2. repec:rje:randje:v:37:y:2006:1:p:23-46 is not listed on IDEAS
    3. Peter Cramton, 2013. "Spectrum Auction Design," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 42(2), pages 161-190, March.
    4. Cramton, Peter & Stoft, Steven, 2005. "A Capacity Market that Makes Sense," The Electricity Journal, Elsevier, vol. 18(7), pages 43-54.
    5. Ilan Kremer & Kjell G. Nyborg, 2004. "Divisible-Good Auctions: The Role of Allocation Rules," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 147-159, Spring.
    6. Ausubel Lawrence M & Milgrom Paul R, 2002. "Ascending Auctions with Package Bidding," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 1(1), pages 1-44, August.
    7. Joskow, Paul L., 2008. "Capacity payments in imperfect electricity markets: Need and design," Utilities Policy, Elsevier, vol. 16(3), pages 159-170, September.
    8. McAdams, David, 2007. "Adjustable supply in uniform price auctions: Non-commitment as a strategic tool," Economics Letters, Elsevier, vol. 95(1), pages 48-53, April.
    9. Frank Wolak, 2013. "Economic and Political Constraints on the Demand-Side of Electricity Industry Re-structuring Processes," Review of Economics and Institutions, Università di Perugia, vol. 4(1).
    10. Robert Wilson, 1979. "Auctions of Shares," The Quarterly Journal of Economics, Oxford University Press, vol. 93(4), pages 675-689.
    11. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-1277, November.
    12. Peter Cramton & Axel Ockenfels & Steven Stoft, 2013. "Capacity Market Fundamentals," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Sebastian Schäfer & Lisa Schulten, 2015. "Efficient Promotion of Renewable Energy with Reverse Auctions," MAGKS Papers on Economics 201520, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    2. Saldarriaga-C., Carlos A. & Salazar, Harold, 2016. "Security of the Colombian energy supply: The need for liquefied natural gas regasification terminals for power and natural gas sectors," Energy, Elsevier, vol. 100(C), pages 349-362.
    3. Peter Cramton, 2017. "Electricity market design," Oxford Review of Economic Policy, Oxford University Press, vol. 33(4), pages 589-612.
    4. Liu, Shuangquan & Yang, Qiang & Cai, Huaxiang & Yan, Minghui & Zhang, Maolin & Wu, Dianning & Xie, Mengfei, 2019. "Market reform of Yunnan electricity in southwestern China: Practice, challenges and implications," Renewable and Sustainable Energy Reviews, Elsevier, vol. 113(C), pages 1-1.
    5. Sebastian Schäfer & Lisa Schulten, 2014. "A Capacity Market to Improve the Transition towards Sustainable Electricity Generation," MAGKS Papers on Economics 201439, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

    More about this item

    Keywords

    Capacity markets; auctions; New England; Colombia; UK;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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