A shortage pricing mechanism for capacity remuneration with simulation for the Greek electricity balancing market

Georgios Tsaousoglou, Konstantinos Petsinis, Prodromos Makris, Iraklis Skoteinos, Nikolaos Efthymiopoulos and Emmanouel Varvarigos

Utilities Policy, 2021, vol. 71, issue C

Abstract: In a shortage pricing (or else scarcity pricing) model, the goal is to create extra revenues whenever the electric system approaches a shortage situation and send market signals that will drive capacity investments. Shortage pricing aims at producing a substantial increase in prices under shortage conditions, thus providing better incentives for new flexibility capacity investment and operation while keeping the security of supply within strict acceptable levels. The shortage price is based on the Loss of Load Probability and the Value of Lost Load. The purpose of this study is to simulate the hypothetical implementation of a shortage pricing mechanism in the Greek balancing market in order to discover cases of reserve capacity scarcity and provide indications for further considerations toward capacity remuneration mechanisms for this system. A real dataset from the Greek TSO data portfolio was used for this purpose. We examine two case studies showcasing that the proposed shortage pricing function can considerably increase the shortage prices exactly when needed by the electric system. Finally, policy implications are provided regarding the future use of the shortage pricing in Greece and its integration in the EU balancing market platforms currently under development.

Keywords: Shortage pricing; Scarcity pricing; Operating reserve demand curve (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:juipol:v:71:y:2021:i:c:s0957178721000606

DOI: 10.1016/j.jup.2021.101226

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