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Cross-border effects of capacity mechanisms in interconnected power systems

Pradyumna C. Bhagwat, Jörn C. Richstein, Emile J.L. Chappin, Kaveri K. Iychettira and Laurens J. De Vries

Utilities Policy, 2017, vol. 46, issue C, 33-47

Abstract: The cross-border effects of a capacity market and a strategic reserve in interconnected electricity markets are modeled using an agent-based modeling methodology. Both capacity mechanisms improve the security of supply and reduce consumer costs. Our results indicate that interconnections do not affect the effectiveness of a capacity market, while a strategic reserve is affected negatively. The neighboring zone may free ride on the security of supply provided by the zone implementing a capacity mechanism. However, a capacity market causes crowding out of generators in the energy-only zone. A strategic reserve implemented by this region could aid in mitigating this risk.

Keywords: Capacity market; Cross-border effect; Strategic reserve (search for similar items in EconPapers)
Date: 2017
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