A game theoretic model for generation capacity adequacy in electricity markets: A comparison between investment incentive mechanisms

Haikel Khalfallah ()
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Haikel Khalfallah: GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - Université de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique

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Abstract: In this paper we study the problem of long-term capacity adequacy in electricity markets. We implement a dynamic model in which operators compete for investment and electricity production under imperfect Cournot competition. The main aim of this work is tocompare three investment incentive mechanisms: reliability options, forward capacity market - which are both market-based - and capacity payments. Apart from the oligopoly case, we also analyze collusion and monopoly cases. Stochastic dynamic programming is used to deal with the stochastic environment of the market (future demand) and mixed complementarityproblem formulation is employed to find a solution to this game. The main finding of this study is that market-based mechanisms would be the most cost-efficient mechanism for assuring long-term system adequacy and encouraging earlier and adequate new investments in the system. Moreover, generators would exert market power when introducing capacity payments. Finally, compared with a Cournot oligopoly, collusion and monopolistic situations lead to more installed capacities with market-based mechanisms and increase end-users' payments.

Keywords: Electricity markets; capacity adequacy; dynamic programming; Nash-Cournot model; mixed complementarity problem (search for similar items in EconPapers)
Date: 2009
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00371842v1
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Citations: View citations in EconPapers (3)

Published in 2009

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00371842

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