L.J. De Vries

The Question of Generation Adequacy in Liberalised Electricity Markets

This paper presents an overview of the reasons why unregulated markets for the production of electricity cannot be expected to invest sufficiently in generation capacity on a continuous basis. Although it can be shown that periodic price spikes should provide generation companies with sufficient investment incentives in theory, there are a number of probable causes of market failure. A likely result is the development of investment cycles that may affect the adequacy of capacity. The experience in California shows the great social costs associated with an episode of scarce generation capacity. Another disadvantage is that generation companies can manipulate price spikes. This would result in large transfers of income from consumers to producers and reduce the operational reliability of electricity supply during these price spikes. We end this paper by outlining several methods that have been proposed to stabilise the market, which provide better incentives to generation companies and consumers alike.

Capacity allocation in a restructured electricity market: technical and economic evaluation of congestion management methods on interconnectors

This paper describes and analyses five market based methods to manage congestion on the European interconnectors: explicit auctioning, implicit auctioning, market splitting, redispatching and counter trading. After a description of the relationship of congestion management to transmission tariffs and the difference between market-based methods and other methods to manage congestion, the five methods are introduced. The following analysis considers both short and long term economic effects, as well as some more technical and practical aspects. The main conclusion is that there are two types of congestion management methods, namely congestion pricing methods and remedial methods, which have opposite long-term effects. The first group provides efficient incentives to market parties but not to network managers, whereas the second group does the opposite.This paper describes and analyses five market based methods to manage congestion on the European interconnectors: explicit auctioning, implicit auctioning, market splitting, redispatching and counter trading. After a description of the relationship of congestion management to transmission tariffs and the difference between market-based methods and other methods to manage congestion, the five methods are introduced. The following analysis considers both short and long term economic effects, as well as some more technical and practical aspects. The main conclusion is that there are two types of congestion management methods, namely congestion pricing methods and remedial methods, which have opposite long-term effects. The first group provides efficient incentives to market parties but not to network managers, whereas the second group does the opposite.

Carbon policies: do they deliver in the long run?

Carbon taxation and emission trading are policy instruments for achieving significant CO2 emission reduction by inducing a shift in technology and fuel choice. Simulations with a quantitative agent-based model of a competitive electricity generation sector show that under both policies CO2 emissions increase for 10-15 years due to the long life cycle of power plants. Dramatic reductions materialize after 20-40 years when a tight cap or sufficient tax level is maintained. When taxes are set equivalent to trading prices, taxation induces earlier investment in CO2 abatement, a better balance between capital and operating costs and lower long-run electricity prices.

Hybrid Electricity Markets: The Problem of Explaining Different Patterns of Restructuring

Publisher Summary This chapter presents a framework for explaining the differences in the approach to electricity market restructuring around the world. A number of policy objectives exist with regard to power market restructuring; the particular institutional context has a strong influence upon which policy objectives are chosen and how they are prioritized. Implementation of these objectives takes place through two main policy areas: the market design process and competition policy (including the policy with respect to horizontal unbundling of dominant incumbent firms). This process is constrained by external factors such as the economic climate and the physical situation in a country.

Balancing market design for a decentralized electricity system: Case of the Netherlands

In liberalized electricity markets, a balancing mechanism is needed for maintaining the continuous balance between electricity production and consumption. Vital as balancing mechanisms-or balancing markets, in case market mechanisms are used for the procurement of reserves and the settlement of costs-are to the performance of liberalized power markets, they are relatively little studied. We have investigated the potential effects of a high percentage of domestic distributed generation (DG) in the Dutch electricity market on the operational performance of the balancing market. The results of the study can be used to improve the design of the balancing market in case the share of DG increases substantially. The analysis also provides more general insight into the balancing market design variables and constraints.

Infrastructure Investment After Liberalization

The liberalization of electricity markets is complicated by the fact that electricity networks have a natural monopoly. To create a ‘level playing field’ in the electricity market, operation and management of electricity networks need to be unbundled from competitive activities like electricity generation, trade and retail. From a technical point of view, however, electricity networks and generating facilities are strongly interdependent. This chapter explores four dilemmas with respect to the development of electricity networks that arise as a result. Two common factors underly these dilemmas: the presence of network externalities, as a result of which it is not possible to establish unambiguously the costs of individual network transactions, and the difference between the life cycle of generation facilities and the life cycle of networks. This chapter frames the issues and outlines possible solution paths.