Strategic Reserves versus Market-wide Capacity Mechanisms

Pär Holmberg and Thomas Tangerås ()

No 1387, Working Paper Series from Research Institute of Industrial Economics

Abstract: Many electricity markets use capacity mechanisms to support generation owners. Capacity payments can mitigate imperfections associated with “missing money” in the spot market and solve transitory capacity shortages caused by investment cycles, regulatory changes, or technology shifts. We discuss capacity mechanisms used in different electricity markets around the world. We argue that strategic reserves, if correctly designed, are likely to be more efficient than market-wide capacity mechanisms. This is especially so in electricity markets that rely on substantial amounts of intermittent generation, hydropower, and energy storage whose available capacity varies with circumstances and is difficult to estimate.

Keywords: Capacity mechanism; Market design; Reliability; Resource efficiency (search for similar items in EconPapers)
JEL-codes: D25 D47 Q40 Q48 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2021-04-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Strategic Reserves versus Market-wide Capacity Mechanisms (2021)
Working Paper: Strategic Reserves versus Market-wide Capacity Mechanisms (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:1387

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