Forward Reliability Markets: Less Risk, Less Market Power, More Efficiency
Peter Cramton () and
Steven Stoft ()
Papers of Peter Cramton from University of Maryland, Department of Economics - Peter Cramton
A forward reliability market is presented. The market coordinates new entry through the forward procurement of reliability options—physical capacity bundled with a financial option to supply energy above a strike price. The market assures adequate generating resources and prices capacity from the bids of competitive new entry in an annual auction. Efficient performance incentives are maintained from a load-following obligation to supply energy above the strike price. The capacity payment fully hedges load from high spot prices, and reduces supplier risk as well. Market power is reduced in the spot market, since suppliers enter the spot market with a nearly balanced position in times of scarcity. Market power in the reliability market is addressed by not allowing existing supply to impact the capacity price. The approach, which has been adopted in New England and Colombia, is readily adapted to either a thermal or a hydro system.
Keywords: Auctions; electricity auctions; capacity auctions; reliability auctions (search for similar items in EconPapers)
JEL-codes: D44 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2008, Revised 2008
References: Add references at CitEc
Citations: View citations in EconPapers (60) Track citations by RSS feed
Published in Utilities Policy, 16, 194-201, 2008
Downloads: (external link)
http://www.cramton.umd.edu/papers2005-2009/cramton ... iability-markets.pdf Full text (application/pdf)
Journal Article: Forward reliability markets: Less risk, less market power, more efficiency (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:pcc:pccumd:08frm
Access Statistics for this paper
More papers in Papers of Peter Cramton from University of Maryland, Department of Economics - Peter Cramton Economics Department, University of Maryland, College Park, MD 20742-7211.
Bibliographic data for series maintained by Peter Cramton ().