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| 1 |
ID:
192714
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| Summary/Abstract |
Since the deregulation of significant parts of electricity markets in many countries worldwide, a generally pronounced matter is that firms strategically lower their generating capacity to raise electricity prices. This paper investigates whether strategic capacity withholding exists in the form of generation failures in the Turkish day-ahead market and whether the capacity remuneration mechanism contributes to the failure durations. The empirical results show strong support for strategic capacity withholding in the Turkish market, and the capacity mechanism adds to the duration of these failures. To the best of our knowledge, this is the first study to investigate capacity withholding considering centrally determined capacity prices and to focus on failure durations and the potential amount of power generation losses they cause. Our analysis conveys core messages for policymakers. A random verification mechanism may be implemented to verify that the failures are purely technical and apply penalties for nonperformance. Second, the Turkish capacity mechanism needs to be restructured to make it more compatible with performance incentives. Our analysis, while focused on the Turkish market, provides insights into the prevalent challenges and potential solutions tied to strategic capacity withholding in deregulated electricity markets globally, notably those employing capacity remuneration mechanisms.
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| 2 |
ID:
088953
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| Publication |
2009.
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| Summary/Abstract |
Competitive markets set a framework in which unregulated market-based interconnections are allowed and encouraged. However, the presence of merchant transmission lines in the role of interconnector raises questions about the impact of these agents on the market conditions and system operation. The interconnector could be allowed to withhold capacity in order to keep the price difference (and profit of it) or be enforced by a must-offer provision to bid all its capacity. In this paper, the long-term dynamic of a market interconnection is studied and analyzed in a test system through a bottom-up simulation model. The outcomes are measured by the level of electricity prices along the simulated period and the annual amount of energy not supplied. The results show that the prices are strongly affected in the average value and in the standard deviation. The benefits of an interconnection as regards reliability are not hidden by the merchant nature of the interconnector. The results of the simulation show that letting the interconnector to control the bids of capacity offered to the markets is not detrimental to the markets. However, there is a lost of benefits compared with the case of a mandatory must-offer provision if compared at the same capacity of transmission line.
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