Incentives for supply adequacy in electricity markets An application to the mexican power sector

Víctor G. Carreón-Rodríguez, Juan Rosellón

Resultado de la investigación: Contribución a una revistaArtículo

Resumen

This paper studies resource adequacy, i.e. the market design dilemma of ensuring enough generation capacity in the long run. International experiences have shown that it is difficult that the market alone provides incentives to attract enough investment in capacity reserves. We analyze various measures to cope with this problem, including moth-ball reserves, capacity payments, ICAP and call options. We then construct a model to analyze the structure of incentives for the expansion of electricity supply in the spot market, and capacity in the long run electricity reserve market. Through a game-theory model, we analyze price convergence in three markets: the peak spot market, the non-peak spot market, and the long-run capacity reserve market. We finally carry out a simulation for Mexican power generation. The combination of CFE'S virtual market, together with capacity payments, has eventually resulted in capacity generation expansion similar to what would be attained in an open electricity market, such as the one modelled in our study. But this does not necessarily imply that the Mexican electricity industry will not need in the future -if the generation market is fully open to private investment- some of the discussed capacity incentive mechanisms.

Idioma originalInglés
Páginas (desde-hasta)249-282
Número de páginas34
PublicaciónEconomia Mexicana, Nueva Epoca
Volumen18
N.º2
EstadoPublicada - 3 ago 2009

Huella dactilar

Incentives
Adequacy
Electricity market
Spot market
Payment
Call option
Price convergence
Virtual market
Private investment
Incentive mechanism
Game theory
Electricity supply
Resources
Simulation
Electricity
Market design
International experience
Power generation
Electricity industry

Citar esto

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title = "Incentives for supply adequacy in electricity markets An application to the mexican power sector",
abstract = "This paper studies resource adequacy, i.e. the market design dilemma of ensuring enough generation capacity in the long run. International experiences have shown that it is difficult that the market alone provides incentives to attract enough investment in capacity reserves. We analyze various measures to cope with this problem, including moth-ball reserves, capacity payments, ICAP and call options. We then construct a model to analyze the structure of incentives for the expansion of electricity supply in the spot market, and capacity in the long run electricity reserve market. Through a game-theory model, we analyze price convergence in three markets: the peak spot market, the non-peak spot market, and the long-run capacity reserve market. We finally carry out a simulation for Mexican power generation. The combination of CFE'S virtual market, together with capacity payments, has eventually resulted in capacity generation expansion similar to what would be attained in an open electricity market, such as the one modelled in our study. But this does not necessarily imply that the Mexican electricity industry will not need in the future -if the generation market is fully open to private investment- some of the discussed capacity incentive mechanisms.",
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Incentives for supply adequacy in electricity markets An application to the mexican power sector. / Carreón-Rodríguez, Víctor G.; Rosellón, Juan.

En: Economia Mexicana, Nueva Epoca, Vol. 18, N.º 2, 03.08.2009, p. 249-282.

Resultado de la investigación: Contribución a una revistaArtículo

TY - JOUR

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AU - Rosellón, Juan

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N2 - This paper studies resource adequacy, i.e. the market design dilemma of ensuring enough generation capacity in the long run. International experiences have shown that it is difficult that the market alone provides incentives to attract enough investment in capacity reserves. We analyze various measures to cope with this problem, including moth-ball reserves, capacity payments, ICAP and call options. We then construct a model to analyze the structure of incentives for the expansion of electricity supply in the spot market, and capacity in the long run electricity reserve market. Through a game-theory model, we analyze price convergence in three markets: the peak spot market, the non-peak spot market, and the long-run capacity reserve market. We finally carry out a simulation for Mexican power generation. The combination of CFE'S virtual market, together with capacity payments, has eventually resulted in capacity generation expansion similar to what would be attained in an open electricity market, such as the one modelled in our study. But this does not necessarily imply that the Mexican electricity industry will not need in the future -if the generation market is fully open to private investment- some of the discussed capacity incentive mechanisms.

AB - This paper studies resource adequacy, i.e. the market design dilemma of ensuring enough generation capacity in the long run. International experiences have shown that it is difficult that the market alone provides incentives to attract enough investment in capacity reserves. We analyze various measures to cope with this problem, including moth-ball reserves, capacity payments, ICAP and call options. We then construct a model to analyze the structure of incentives for the expansion of electricity supply in the spot market, and capacity in the long run electricity reserve market. Through a game-theory model, we analyze price convergence in three markets: the peak spot market, the non-peak spot market, and the long-run capacity reserve market. We finally carry out a simulation for Mexican power generation. The combination of CFE'S virtual market, together with capacity payments, has eventually resulted in capacity generation expansion similar to what would be attained in an open electricity market, such as the one modelled in our study. But this does not necessarily imply that the Mexican electricity industry will not need in the future -if the generation market is fully open to private investment- some of the discussed capacity incentive mechanisms.

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KW - Capacity payments

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