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Resource Adequacy with Increasing Shares of Wind and Solar Power: A Comparison of European and U.S. Electricity Market Designs

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  • Audun Botterud and Hans Auer

Abstract

We raise the question if improvements to current energy-only markets are sufficient to maintain resource adequacy in electricity markets or whether the rapid increase in wind and solar power gives stronger arguments for additional capacity mechanisms. A comparative analysis between Europe and the United States reveals some fundamental differences, but also many similarities in electricity market design on the two continents. We provide a list of general and specific recommendations for improved electricity markets and argue that lessons can and should be learned in both directions. The key to achieve a market-compatible integration of renewable energy is to focus on correct price formation in the short-term. Increased demand-side participation, improved pricing during scarcity conditions, and a transition from technology-specific subsidies of renewables towards adequate pricing of carbon emissions are important measures towards this end. In contrast, an increasing reliance on administrative capacity mechanisms would bring the industry back towards the centralized integrated resource planning that prevailed at the outset of electricity restructuring more than 25 years ago.

Suggested Citation

  • Audun Botterud and Hans Auer, 2020. "Resource Adequacy with Increasing Shares of Wind and Solar Power: A Comparison of European and U.S. Electricity Market Designs," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
  • Handle: RePEc:aen:eeepjl:eeep9-2-botteru
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    Citations

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    Cited by:

    1. Silva-Rodriguez, Lina & Sanjab, Anibal & Fumagalli, Elena & Virag, Ana & Gibescu, Madeleine, 2022. "Short term wholesale electricity market designs: A review of identified challenges and promising solutions," Renewable and Sustainable Energy Reviews, Elsevier, vol. 160(C).
    2. Schipfer, F. & Mäki, E. & Schmieder, U. & Lange, N. & Schildhauer, T. & Hennig, C. & Thrän, D., 2022. "Status of and expectations for flexible bioenergy to support resource efficiency and to accelerate the energy transition," Renewable and Sustainable Energy Reviews, Elsevier, vol. 158(C).
    3. Lina Silva-Rodriguez & Anibal Sanjab & Elena Fumagalli & Ana Virag & Madeleine Gibescu, 2020. "Short Term Electricity Market Designs: Identified Challenges and Promising Solutions," Papers 2011.04587, arXiv.org.
    4. Sirin, Selahattin Murat & Camadan, Ercument & Erten, Ibrahim Etem & Zhang, Alex Hongliang, 2023. "Market failure or politics? Understanding the motives behind regulatory actions to address surging electricity prices," Energy Policy, Elsevier, vol. 180(C).
    5. Arango-Aramburo, Santiago & Bernal-García, Sebastián & Larsen, Erik R., 2021. "Renewable energy sources and the cycles in deregulated electricity markets," Energy, Elsevier, vol. 223(C).
    6. Stevovic, Ivan & Mirjanic, Dragoljub & Petrovic, Natasa, 2021. "Integration of solar energy by nature-inspired optimization in the context of circular economy," Energy, Elsevier, vol. 235(C).

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    JEL classification:

    • F0 - International Economics - - General

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