Conference: Proceedings of the 2nd International Conference on Mathematical Statistics and Economic Analysis, MSEA 2023, May 26–28, 2023, Nanjing, China
Scarcity pricing is a mechanism for improving the valuation of reserve capacity in real-time electricity markets. The goal of scarcity pricing is to mitigate the missing money problem and enhance investment in flexible resources. The implementation of scarcity pricing is underway in a number of U.S. markets, including Texas and PJM. The implementation is also currently under consideration in Belgium. As the mechanism was originally conceived in the context of a U.S.-style two-settlement system, its implementation in a European setting poses a number of interesting market design dilemmas which can affect the back-propagation of scarcity prices to forward day-ahead markets for energy and reserve capacity. We propose a modeling framework for analyzing these market design choices based on stochastic equilibrium, and use this modeling framework in order to represent and analyze a wide range of market design proposals. We report results on a case study of the Belgian electricity market.
Capacity auctions with reliability options are seen as a promising possibility to reduce the investment risk for electricity generators as well as to set incentives for sufficient investments in generating capacity. However, there has been little attention so far on the interaction between a capacity market and an increasing share of renewable energy. In a first step we formalize the functioning of capacity auctions with reliability options. We improve their incentive regulation to allow effective incentives for sufficient investments. In a second step we study, with comparative statics, how an increasing share of renewable energy, varying carbon emission costs and the existing capacity mix influence the outcome of a capacity auction. For an increasing share of renewable energy, capacity auctions direct investments to more flexible power plants. This opposes the merit order effect of renewable energy which is observed at energy-only markets. A capacity market can therefore prevent missing flexibility feared at energy-only markets as a result of an increasing share of renewable energy.
This paper describes and analyzes the Greek capacity market or, as named, the ldquocapacity adequacy mechanismrdquo. A detailed description of the recently established mechanism is given, whose design is a hybrid model combining elements from three different designs: the US capacity markets, the capacity payment mechanisms and the centralized auctions for capacity contracts. Next, the goals of this design are explained. In the case of Greece the goals are not restricted just to the so-called ldquomissing moneyrdquo problem, therefore an analysis follows examining the incentives given to the market participants. The analysis shows the dependence of the mechanism on mainly two factors: the over/under-capacity of the market and the strategic behavior of the market participants, especially of the incumbent. In general, the capacity adequacy mechanism is expected to operate quite satisfactory, giving the ldquorightrdquo incentives to the market participants. Some minor amendments to the rules are proposed, aiming to further increase its efficiency.
The electricity retail market reform is the most active field in the new round of power system reform. It is necessary to speed up the formation and development of the electricity retail companies, to study its business classification supervision and development mode, and to improve the management and operation efficiency of the electricity retail companies. Therefore, according to the experience of domestic and foreign retail market reform, this paper studies the business strategy and business development model of electricity retail companies participating in market competition in the opening electricity retail market. According to the policy framework of the new round of power system reform, the classification and characteristics of the electricity retail companies are clarified, and the different ways of participating in the market competition are studied. Secondly, considering the value of users’ energy, the degree of market participation, and the grade of telecommunication, the model of multi-value level of electricity users is established. Finally, based on the diversification of electricity retail companies and the choice of customers, the paper puts forward the differentiated management strategies of electricity retail companies from four aspects: service strategy, management strategy, talent strategy and competitive strategy, which will provide strategic reserve and theoretical support for electricity retail companies.
A number of mechanisms have been suggested for capacity adequacy. A study using laboratory experiments both of procurement of long-term strategic reserve contracting and of centralized auctioning for capacity contracts suggests that the centralized auctioning process stabilizes laboratory markets and provides economic welfare comparable to a free market. The strategic reserve contracting process does not seem to improve either of the two aspects compared to a non-regulated market.
A reduced attractiveness of investments in reliable fossil power plants in liberalized markets on the background of a transition towards renewable energies has brought a discussion on capacity policies to Europe. I develop a partial equilibrium model to compare effects of three polar capacity remuneration mechanisms (CRMs) based on the assumption that a CRM is indicated. A strategic reserve (SR) policy with administratively set capacity targets, a capacity market (CM) based on public procurement, and a decentralized reserve market with the obligation of generators to finance reserves in relation to their peak supply (RM). Substantial differences of policies arise across countries and regarding consumers and producers due to power plant structures. By 2023, we find the decentralized RM to induce least pronounced distributional effects and only modest welfare reductions, while SR and CM induce higher losses. In the longer term until 2033, welfare results differ less pronounced, although the RM is most friendly to consumers. A robust policy conclusion has to pay attention to further aspects concerning the environment and technological developments.
Suppressed prices in real-time markets provide inadequate incentives for both generation investment and active participation by demand bidding. An operating reserve demand curve developed from first principles would improve reliability, support adequate scarcity pricing, and be straightforward to implement within the framework of economic dispatch. This approach would be fully compatible with other market-oriented policies. Better scarcity pricing would also contribute to long-term resource adequacy.
Capacity payments and capacity markets are one mechanism for ensuring that sufficient marginal generation is built to meet peak demands with an adequate reserve margin. The European Union experience with such mechanisms has focused on capacity payment mechanisms, while in the United States the trend has been towards quantity-based mechanisms, especially in the form of locationally-specific, centralized procurement auctions on a forward basis, with the grid operator securing capacity commitments three or four years ahead and allocating costs based on realized peak load. Historically, many of the European and U.S. capacity market designs have been generally ineffectual. Recent American designs have evolved towards contractual mechanisms that guarantee adequate generation investment but at potentially higher costs.