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Analysis of long-term guarantee of supply in power markets: Application of the marginal theory

E. Parrilla, C. Vázquez

2005 Market Design Conference, Stockholm (Sweden). 07-08 June 2005


Summary:

In this paper the marginal theory is applied to discuss the different long-term equilibria that could be reached in an electricity market depending on the market participants’ (generators, consumers and the regulator) goals and constraints. The aim is to identify the key elements of a possible market failure in providing generation adequacy —immature demand, regulated tariffs, long-term contracting, different agents perception of the market risks, etc— and to study their influence in the long-term market equilibrium. Furthermore, we analyze several of the different capacity mechanisms that could be used to ensure generation adequacy, such as: short-term capacity payments, long-term capacity payments and capacity markets. This final analysis includes an estimation of how useful each method is to compensate the market failures that we have previously identified.


Keywords: Marginal theory, security of supply, risk aversion modelling.


Publication date: 2005-06-07.



Citation:
E. Parrilla, C. Vázquez, Analysis of long-term guarantee of supply in power markets: Application of the marginal theory, 2005 Market Design Conference, Stockholm (Sweden). 07-08 June 2005.

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