Strategic Behaviour in a Capacity Market? The New Irish Electricity Market Design

Juha Teirilä and Robert A. Ritz
Authors registered in the RePEc Author Service: Robert A. Ritz

The Energy Journal, 2019, vol. Volume 40, issue The New Era of Energy Transition

Abstract: The transition to a low-carbon power system requires growing the share of generation from (intermittent) renewables while ensuring security of supply. Policymakers and economists increasingly see a capacity mechanism as a way to deal with this challenge. Yet this raises new concerns about the exercise of market power by large players via the capacity auction. We present a new modelling approach that captures such strategic behaviour together with a set of ex ante empirical estimates for the new Irish electricity market design (I-SEM) - in which a single firm controls 44% of generation capacity (excluding wind). We find significant costs of strategic behaviour, even with new entry: In our baseline scenarios, procurement costs in the capacity auction are around 150-400 million EUR (or 40-100%) above the competitive least-cost solution. From a policy perspective, we also examine how market power can be measured and mitigated through auction design.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (16)

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Related works:
Journal Article: Strategic Behaviour in a Capacity Market? The New Irish Electricity Market Design (2019)
Working Paper: Strategic behaviour in a capacity market? The new Irish electricity market design (2018)
Working Paper: Strategic behaviour in a capacity market? The new Irish electricity market design (2018)
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