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

Juha Teirilä and Robert Ritz

The Energy Journal, 2019, vol. 40, issue 1_suppl, 105-126

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.

Keywords: Capacity market; Strategic behaviour; Competitive benchmark analysis; Restructured electricity market; Auction design (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://journals.sagepub.com/doi/10.5547/01956574.40.SI1.jtei (text/html)

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)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:40:y:2019:i:1_suppl:p:105-126

DOI: 10.5547/01956574.40.SI1.jtei

Access Statistics for this article

More articles in The Energy Journal
Bibliographic data for series maintained by SAGE Publications ().