EconPapers    
Economics at your fingertips  
 

The Final Hurdle?: Security of supply, the Capacity Mechanism and the role of interconnectors

David M Newbery () and Michael Grubb ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: The UK Government has developed a carefully designed Capacity Mechanism to ensure security of supply in the GB electricity system. This paper criticises the methods used to determine the amount of capacity to procure, and argues that the amount finally proposed is likely to be excessive, particularly (but not exclusively) in ignoring the contribution from interconnectors. More broadly, there has been too little attention to either the political economy, or the option value aspects. Procuring too little is risky, but fear of'the lights going out' can easily become a catch-all argument for excessive procurement, and associated subsidy. The risk of over-procurement, particularly of new capacity on long-term contracts, is that it drives up the costs to consumers; undermines renewable energy by transferring capped resources from renewable to fossil fuel producers; and impedes the Single Market including by weakening the business case for future interconnectors. The paper argues that the development of technologies and markets, particularly on the demand- side and of potentially available – 'latent' – capacity - further lowers the risks and increases options. This implies greater potential to defer more capacity procurement – and enhances the value of a more appropriate treatment of interconnectors in security assessments.

Keywords: Capacity Mechanisms; procurement volume; interconnectors (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene and nep-reg
Date: 2014-10-03
Note: dmgn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed

Downloads: (external link)
http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1433.pdf

Related works:
Working Paper: The Final Hurdle?: Security of supply, the Capacity Mechanism and the role of interconnectors (2014) Downloads
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:cam:camdae:1433

Access Statistics for this paper

More papers in Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge
Bibliographic data for series maintained by Jake Dyer ().

 
Page updated 2019-08-24
Handle: RePEc:cam:camdae:1433