A game theoretic model for generation capacity adequacy in electricity markets: A comparison between investment incentive mechanisms

Mohamed Haikel Khalfallah ()
Additional contact information
Mohamed Haikel Khalfallah: University of Lyon, Lyon, F-69003, France; CNRS, UMR 5824, GATE, Ecully, F-69130, France; ENS LSH, Lyon, F-69007, France

No 905, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: In this paper we study the problem of long-term capacity adequacy in electricity markets. We implement a dynamic model in which operators compete for investment and electricity production under imperfect Cournot competition. The main aim of this work is to compare three investment incentive mechanisms: reliability options, forward capacity market - which are both market-based - and capacity payments. Apart from the oligopoly case, we also analyze collusion and monopoly cases. Stochastic dynamic programming is used to deal with the stochastic environment of the market (future demand) and mixed complementarity problem formulation is employed to find a solution to this game. The main finding of this study is that market-based mechanisms would be the most cost-efficient mechanism for assuring long-term system adequacy and encouraging earlier and adequate new investments in the system. Moreover, generators would exert market power when introducing capacity payments. Finally, compared with a Cournot oligopoly, collusion and monopolistic situations lead to more installed capacities with market-based mechanisms and increase end-usersí payments.

Keywords: Electricity markets; capacity adequacy; dynamic programming; Nash-Cournot model; mixed complementarity problem (search for similar items in EconPapers)
JEL-codes: C61 C68 C73 D58 L13 Q41 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2009
New Economics Papers: this item is included in nep-ene and nep-mic
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
ftp://ftp.gate.cnrs.fr/RePEc/2009/0905.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:0905

Access Statistics for this paper

More papers in Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon Contact information at EDIRC.
Bibliographic data for series maintained by Nelly Wirth ( this e-mail address is bad, please contact ).