Uncertainty and the long-term adequacy of supply: Simulations of capacity mechanisms in electricity markets

David Lara-Arango, Santiago Arango-Aramburo*, Erik R. Larsen

*Corresponding author for this work

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

14 Citations (Scopus)

Abstract

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.

Original languageEnglish
JournalEnergy Strategy Reviews
Volume18
Pages (from-to)199-211
Number of pages13
ISSN2211-467X
DOIs
Publication statusPublished - 2017

Keywords

  • Adequacy of supply
  • Capacity mechanisms
  • Centralized auctions
  • Security of supply
  • Strategic reserves
  • Uncertainty

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