The paper analyzes the determinants of optimal electric capacity and contrasts these with the requirements typically applied in a multi-regional model. We first analyze the relationship between usual reliability criteria such as the value of lost load and the targeted probability of failure, on the one hand, and the conditions that define optimal level of capacity on the other. Secondly, we characterize the social gains from energy trading between two interconnected regions that differ in terms of technologies or demand. Market mechanisms are sufficient to reach the first best allocation, irrespective of the correlation between national demand levels, provided that firms have no market power and fully internalize the value of lost load due to power rationing when supplies are inadequate. Thirdly, we explain the impact of various compensation mechanisms such as capacity payments when producers face a regulatory capacity constraint.
Capacity adequacy; Electricity trade; Capacity adequacy; Capacity credits; Cooperation; Value of loss load;
- D44: Auctions
- F10: General
- H57: Procurement
- L51: Economics of Regulation
- L94: Electric Utilities
Claude Crampes, and David Salant, “A multi-regional model of electric resource adequacy”, TSE Working Paper, n. 18-877, January 2018.
TSE Working Paper, n. 18-877, January 2018