Impacts of unilateral capacity remunerative mechanisms on cross-border electricity trade

Olga Gore, Satu Viljainen, Kalevi Kyläheiko and Ari Jantunen

International Journal of Business Innovation and Research, 2014, vol. 8, issue 6, 684-699

Abstract: This paper focuses on the impacts of capacity remunerative mechanisms (CRMs) on electricity cross-border trade. As an example case, we focus on the cross-border electricity trade between the Nordic and Russian electricity markets. These two markets have distinctively different market designs. The Nordic market is an energy-only market that rewards the electricity generators for the output they produce. The Russian market rewards generators for the output and availability of electricity generation. We analyse the prospects for the cross-border electricity trade between the two markets. Our findings suggest that the different market designs notably reduce the cross-border electricity trade between the two markets and also have significant impacts on the distribution of welfare amongst the consumers and producers. These results have significant implications because many European countries are currently considering unilateral CRMs. An obvious threat is that the particularly uncoordinated CRMs cause impediments to the cross-border electricity trade, and result in inefficient use of the interconnectors. Such a development could severely hinder the achievement of the internal electricity market in Europe.

Keywords: electricity markets; capacity remuneration mechanisms; unilateral CRMs; cross-border trade; Russia; Nordic countries; energy-only markets; energy availability markets; energy markets; consumer benefits; producer benefits; inefficient interconnections; European electricity market. (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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