Cross-Border Effects of Capacity Mechanisms: Do Uncoordinated Market Design Changes Contradict the Goals of the European Market Integration?

Roland Meyer and Olga Gore

No 17, Bremen Energy Working Papers from Bremen Energy Research

Abstract: This paper analyses cross-border effects of a strategic reserve (SR) and reliability options (ROs) based on a two-country simulation model. Using a game-theoretic approach, the countries' policy options for capacity remuneration mechanisms (CRMs) are analysed with respect to welfare and distribution effects. An SR tends to narrow down the market, while ROs intensify price competition. However, cross-border effects are most likely negative for consumers and producers in total in the case of a unilateral implementation of a CRM, and market design changes should be coordinated. All results are strongly driven by possible changes in competition and market power. In practice, the market design decision should also consider possible regulatory failures that might lead to further market distortions. The risk of market design flaws seems larger for full capacity markets such as ROs than for an SR, which requires only minor adjustments to the market design.

Keywords: market design; generation adequacy; capacity mechanisms; internal European market (search for similar items in EconPapers)
JEL-codes: D47 L11 L52 L94 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2014-06
New Economics Papers: this item is included in nep-ene and nep-reg
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Published in Energy Economics, 51, 2015, pp. 9-20

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988315001863 (text/html)
Access to full text is restricted to subscribers.

Related works:
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:bei:00bewp:0017

Access Statistics for this paper

More papers in Bremen Energy Working Papers from Bremen Energy Research
Bibliographic data for series maintained by Anna Pechan ().