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| 1 |
ID:
098621
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| Publication |
2010.
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| Summary/Abstract |
The implementation of auctions of long-term electricity contracts is arising as an alternative to ensure generation investment and therefore achieve a reliable electricity supply. The aim is to reconcile generation adequacy with efficient energy purchase, correct risk allocation among investors and consumers, and the politico-economic environment of the country. In this paper, a generic proposal for a long-term electricity contracts approach is made, including practical design concepts for implementation. This proposal is empirically derived from the auctions implemented in Brazil and Chile during the last 6 years. The study is focused on practices and lessons which are especially useful for regulators and policy makers that want to facilitate the financing of new desirable power plants in risky environments and also efficiently allocate supply contracts among investors at competitive prices. Although this mechanism is generally seen as a significant improvement in market regulation, there are questions and concerns on auction performance that require careful design and which are identified in this paper. In addition, the experiences and proposal described can serve to derive further mechanisms in order to promote the entrance of particular generation technologies, e.g. renewables, in the developed world and therefore achieve a clean electricity supply.
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| 2 |
ID:
150870
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| Summary/Abstract |
Following liberalization reforms, the ability of power markets to provide satisfactory incentives for capacity investments has become a major concern. In particular, current energy markets can exhibit a phenomenon of investment cycles, which generate phases of under and over-capacity, and hence additional costs and risks for generation adequacy. To cope with these issues, new mechanisms, called capacity remuneration mechanisms (CRM), have been (or will be) implemented. This paper assesses the dynamic effects of two CRMs, the capacity market and the strategic reserve mechanism, and studies to what extent they can reduce the investment cycles. Generation costs and shortage costs of both mechanisms are also compared to conclude on their effectivity and economic efficiency. A simulation model, based on system dynamics, is developed to study the functioning of both CRMs and the related investment decisions. The results highlight the benefits of deploying CRMs to solve the adequacy issue: shortages are strongly reduced compared to an energy-only market. Besides, the capacity market appears to be more beneficial, since it experiences fewer shortages and generation costs are lower. These comparisons can be used by policy makers (in particular in Europe, where these two CRMs are mainly debated) to determine which CRM to adopt.
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| 3 |
ID:
150620
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| Summary/Abstract |
In liberalized electricity markets we observe different approaches to congestion management. While nodal pricing is implemented in Canada and some markets in the United States, European markets are split up into a limited number of price zones with uniform prices, in order to at least partially realize the benefits of regional price differentiation. Zonal boundaries often coincide with national borders, but some countries are also split into multiple zones. In this paper we shed light on possible negative welfare effects of market splitting that arise in a model where investment incentives in new generation capacity are taken into account if zones are misspecified. We show that standard approaches to configure price zones – on the basis of projected nodal price differences or congested transmission capacity – may fail to suggest reasonable zone specifications. Also an adjustment of Available Transfer Capacities (ATCs) between zones or a switch to flow-based market splitting does not ensure positive welfare effects. Our analysis suggests that a careful and detailed evaluation of the system is needed to ensure a reasonable zone configuration.
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