Enhancing power supply adequacy in Spain: Migrating from capacity payments to reliability options

Batlle, Carlos; Vázquez, C.; Rivier, Michel; Pérez-Arriaga, Ignacio J.

doi:10.1016/j.enpol.2007.04.002

Cited by 47 publications

(13 citation statements)

References 8 publications

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“…The capacity payment is a subsidy per available capacity. If more capacity payments are paid, a lower price-cap can be set, and this improves the price stability, but it has two drawbacks [5,12,13]. First, benefits of consumers in exchange of the capacity payments are unclear, even though consumers finance the capacity payments in the long run.…”

Section: Capacity Mechanismsmentioning

confidence: 97%

Assessing impacts of capacity mechanism on long‐term market equilibrium

Han

Hur

Sohn

et al. 2009

Int Trans Elec Energy Syst

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SUMMARYIt has long been presumed that the electricity market can provide the correct economic signal for the investment of new generation. However, in response to concerns over the reasonableness of an investment signal in the energy-only electricity market, various designs of capacity mechanisms have been proposed to solve the adequacy problem. In this paper, we focus on analyzing the influence of capacity mechanisms on the long-term market equilibrium in the electricity market. Three market models are considered: a price-spike model, a capacity payment model, and a capacity demand curve model. The long-term market equilibrium in each market model is calculated through load duration, price duration, net revenue, and generation investment models. To consider the generation companies' investment behavior when the profit contains uncertainties, different utility functions representing their risk attitude is introduced. This paper presents the sensitivity of the risk components such as the change of the generation companies' risk attitude, the forced outage rate, the error of the forecasted peak load, and the load factor. The performance of each market model has been compared, which would come to the conclusion that when the electricity market does not have enough demand response and the ability to remove the abuse of market power, as transitional measures, it is necessary to adopt the capacity demand curve model even though it is not market-based approach and has the drawback that the performance depends on the shape of the capacity demand curve and market conditions.

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Section: Capacity Mechanismsmentioning

confidence: 97%

Assessing impacts of capacity mechanism on long‐term market equilibrium

Han

Hur

Sohn

et al. 2009

Int Trans Elec Energy Syst

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show abstract

“…The proposed solutions are based on supplementary economic signals to the spot price, among them: (i) operational reserve requirements [6], (ii) quantitybased mechanisms such as mandatory bilateral contracting [7,8] or capacity requirements [2], (iii) price-based mechanisms such an explicit payment for the installed capacity [9], or still (iv) the most recent approaches such as forward capacity markets based on demand curves [4, 10] -in case the capacity instrument has the financial characteristic of a 'call option' which is used to add incentive to the generators' availability, it is called a forward reliability market [11]. The common goal for these improvements is to stabilise the revenue for investors in generation in such a way that risks decrease and supply expansion occurs in a sustained manner.…”

Section: Introductionmentioning

confidence: 99%

Simulation model to assess the performance of a forward capacity market for hydro-based systems

Zucarato

Silva

2012

IET Gener. Transm. Distrib.

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Faced with the need for additional generation resources to meet growing demand, many market designers point out the need for a mechanism to coordinate and incentive capacity investment. Several variations of capacity mechanisms have been proposed for this purpose. This study presents the theoretical basis of how concepts of a forward capacity market (FCM) can be applied for hydrothermal systems with significant portion of hydro generation, and a dynamic simulation model to assess the performance of an FCM under different levels of competitive conditions, ranging from monopoly to perfect competition. At each annual step of the simulation, the proposed model uses game theory to describe the strategic interdependence among the generators, which results in an optimisation problem that allows finding the total amount of new capacity to be added to the system. The solution of the game also takes into account the behaviour of entrant generators when faced with the uncertainties regarding demand growth and future water inflows. The main contribution of this study is to model the strategic behaviour of investors in generation. The proposed model is capable of reproducing classical economic results for complex cases such as asymmetric oligopoly, which considers uncertainty in the demand growth rate and risk averse players. NomenclatureIndexes i index of the entrant generator y years of the simulation horizon t years of the planning horizon Parameters Y length, in years, of the simulation horizon T length, in years, of planning horizon d y demand growth rate (%) r i risk aversion parameter of the generator i FC i fixed cost of the generator i ($/MWh) VC i variable cost of the generator i ($/MWh) C i total cost of generator i ($/MWh) R long run mean for the energy reserve h mean reversion rate for the energy reserve s energy reserve volatility h speed of reversion for the energy reserve j discount rate Variables D y annual energy demand (average value) for the year y (MWh) D A,y real demand for the year y (MWh)

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“…Most regulators recognize the importance of a stable regulatory framework with incremental improvements, as radical market design changes may have unforeseen effects. The case of Spain is exemplary, where an improvement of the existing capacity payment scheme has been preferred to the radical changes associated with the implementation of a RO scheme (Batlle et al, 2007). While ROs look promising, they are yet untested, and their implementation should provide an insightful precedent.…”

Section: Innovative Reliability Optionsmentioning

confidence: 99%

“…The method consists in awarding to each generating unit a daily payment (only when it is available) which is computed by multiplying the firm capacity of each generating unit times a per unit capacity payment that may be uniform or may vary with the season. Different approaches are used to determine the firm capacity of the generating units, which represents a measure of the contribution of each generating unit to the reliability of the power system (Batlle et al, 2007). Frequent conflicts have arisen because of the rules of definition of firm capacity of hydro plants and also of different technologies and vintages of thermal plants.…”

Section: Capacity Payments In the Uk Spain And Latin Americamentioning

confidence: 99%

Market design for generation adequacy: Healing causes rather than symptoms

Roques

2008

Utilities Policy

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Enhancing power supply adequacy in Spain: Migrating from capacity payments to reliability options

Cited by 47 publications

References 8 publications

Assessing impacts of capacity mechanism on long‐term market equilibrium

Assessing impacts of capacity mechanism on long‐term market equilibrium

Simulation model to assess the performance of a forward capacity market for hydro-based systems

Market design for generation adequacy: Healing causes rather than symptoms

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