Strategic behaviour in a capacity market? : the new Irish electricity market design
Teirilä, Juha; Ritz, Robert A. (2018-10-15)
Teirilä, J., & Ritz, R. A. (2019). Strategic Behaviour in a Capacity Market? The New Irish Electricity Market Design. The Energy Journal, 40(01). https://doi.org/10.5547/01956574.40.si1.jtei
© 2019 International Association for Energy Economics. Published in this repository with the kind permission of the publisher.
https://rightsstatements.org/vocab/InC/1.0/
https://urn.fi/URN:NBN:fi-fe2021061838720
Tiivistelmä
Abstract
The transition to a low-carbon power system requires growing the share of generation from (intermittent) renewables while ensuring security of supply. Policymakers and economists increasingly see a capacity mechanism as a way to deal with this challenge. Yet this raises new concerns about the exercise of market power by large players via the capacity auction. We present a new modelling approach that captures such strategic behaviour together with a set of ex ante empirical estimates for the new Irish electricity market design (I-SEM) — in which a single firm controls 44% of generation capacity (excluding wind). We find significant costs of strategic behaviour, even with new entry: In our baseline scenarios, procurement costs in the capacity auction are around 150–400 million EUR (or 40–100%) above the competitive least-cost solution. From a policy perspective, we also examine how market power can be measured and mitigated through auction design.
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