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Economics and Design of Capacity Markets for the Power Sector

Peter Cramton () and Axel Ockenfels

Papers of Peter Cramton from University of Maryland, Department of Economics - Peter Cramton

Abstract: Capacity markets are a means to assure resource adequacy. The need for a capacity market stems from several market failures the most prominent of which is the absence of a robust demand-side. Limited demand response makes market clearing problematic in times of scarcity. We present the economic motivation for a capacity market, present one specific market design that utilizes the best design features from various resource adequacy approaches analyzed in the literature, and we discuss other instruments to deal with the problems. We then discuss the suitability of the market for Europe and Germany in particular.

Keywords: Auctions; electricity auctions; capacity auctions; reliability auctions (search for similar items in EconPapers)
JEL-codes: D44 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2012, Revised 2012
New Economics Papers: this item is included in nep-ene and nep-res
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Published in Zeitschrift für Energiewirtschaft, 36:113-134, 2012

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