TY - JOUR
T1 - Uncertainty and the long-term adequacy of supply
T2 - Simulations of capacity mechanisms in electricity markets
AU - Lara-Arango, David
AU - Arango-Aramburo, Santiago
AU - Larsen, Erik R.
PY - 2017
Y1 - 2017
N2 - Deregulation in electricity markets has changed the conditions for maintaining long-term adequacy of supply. Particularly in the last decade, security of supply has become a major issue for policymakers due to a number of changes in technology, especially the introduction of renewables, where regulators have introduced capacity mechanisms. In this paper, we focus on the use of two different capacity mechanisms: procurement for long-term strategic reserves contracting, and centralized auctioning for capacity contracts. We investigate the effect of uncertainty on the effectiveness of these two mechanisms in maintaining a stable and sufficient supply of capacity. We use simulation to establish the behavior as the level of uncertainty is increased. Our results suggest that a market's level of uncertainty plays an important role in the effectiveness of these two interventions. The results raise questions about when it is appropriate to introduce either of them.
AB - Deregulation in electricity markets has changed the conditions for maintaining long-term adequacy of supply. Particularly in the last decade, security of supply has become a major issue for policymakers due to a number of changes in technology, especially the introduction of renewables, where regulators have introduced capacity mechanisms. In this paper, we focus on the use of two different capacity mechanisms: procurement for long-term strategic reserves contracting, and centralized auctioning for capacity contracts. We investigate the effect of uncertainty on the effectiveness of these two mechanisms in maintaining a stable and sufficient supply of capacity. We use simulation to establish the behavior as the level of uncertainty is increased. Our results suggest that a market's level of uncertainty plays an important role in the effectiveness of these two interventions. The results raise questions about when it is appropriate to introduce either of them.
KW - Adequacy of supply
KW - Capacity mechanisms
KW - Centralized auctions
KW - Security of supply
KW - Strategic reserves
KW - Uncertainty
UR - http://www.scopus.com/inward/record.url?scp=85032854496&partnerID=8YFLogxK
U2 - 10.1016/j.esr.2017.10.002
DO - 10.1016/j.esr.2017.10.002
M3 - Journal article
AN - SCOPUS:85032854496
SN - 2211-467X
VL - 18
SP - 199
EP - 211
JO - Energy Strategy Reviews
JF - Energy Strategy Reviews
ER -