Dynamic assessment of capacity investment in electricity market considering complementary capacity mechanisms

Masoud Hasani and Seyed Hamid Hosseini

Energy, 2011, vol. 36, issue 1, 277-293

Abstract: This paper proposes a decentralized market-based model for long-term capacity investment decisions in a liberalized electricity market. Investment decisions are fundamentally based on total revenues gained by investors. In most electricity markets, the complementary mechanisms are designed to ensure a desired level of reliability while covering investment costs of the suppliers. In such an environment, investment decisions are highly sensitive to expectation of price signals in both of energy market and capacity mechanisms. In this work, the system dynamics concepts are used to model the structural characteristics of electricity market such as, long-term firms’ behavior and relationships between variables, feedbacks, and time delays by appropriately bundling the energy market and capacity mechanisms. The market oriented capacity price as well as non-competitive capacity payments and a proposed hybrid capacity mechanism are linked with the energy market in the model. Such a decision model enables both the generation companies and the regulators gaining perfect insights into the possible consequences of different decisions they make under different policies and market conditions. In order to examine the performance of the electricity market with different capacity mechanisms, a case study is presented which exhibits the effectiveness of the proposed model.

Keywords: Energy market; Capacity mechanisms; Capacity market; Capacity payment; Investment decision; System dynamics (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:36:y:2011:i:1:p:277-293

DOI: 10.1016/j.energy.2010.10.041

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