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Simulating the new British Electricity-Market Reform

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  • Franco, Carlos J.
  • Castaneda, Monica
  • Dyner, Isaac

Abstract

The British government is implementing fully its novel Electricity Market Reform (GB EMR). Its objective, in line with European directives, aims at replacing existing nuclear and coal plant with low-carbon systems, to deliver reliable and affordable power. Though the GB EMR has proposed several policy instruments for meeting its objectives, and the academic literature has discussed the main issues, no known report includes a comprehensive and dynamic simulation exercise that assesses the extent of this profound and important initiative. This paper presents a system dynamics model that supports analysis of long-term effects of the various policy instruments that have been proposed in the GB EMR, focusing on environmental quality, security of supply and economic sustainability. Using lessons learned from simulation, the paper concludes that effectively achieving the GB EMR objectives requires this comprehensive intervention or a similar one that includes the promotion of low carbon electricity generation through the simultaneous implementation of various direct and indirect incentives, such as a carbon price floor, a Feed in Tariff (FIT) and a capacity mechanism.

Suggested Citation

  • Franco, Carlos J. & Castaneda, Monica & Dyner, Isaac, 2015. "Simulating the new British Electricity-Market Reform," European Journal of Operational Research, Elsevier, vol. 245(1), pages 273-285.
    • Handle: RePEc:eee:ejores:v:245:y:2015:i:1:p:273-285
    DOI: 10.1016/j.ejor.2015.02.040
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    10. Esmaieli, M. & Ahmadian, M., 2018. "The effect of research and development incentive on wind power investment, a system dynamics approach," Renewable Energy, Elsevier, vol. 126(C), pages 765-773.
    11. Zapata, Sebastian & Castaneda, Monica & Franco, Carlos Jaime & Dyner, Isaac, 2019. "Clean and secure power supply: A system dynamics based appraisal," Energy Policy, Elsevier, vol. 131(C), pages 9-21.
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    14. Tsai, I-Chun, 2024. "Fossil energy risk exposure of the UK electricity system: The moderating role of electricity generation mix and energy source," Energy Policy, Elsevier, vol. 188(C).
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    16. Bublitz, Andreas & Keles, Dogan & Zimmermann, Florian & Fraunholz, Christoph & Fichtner, Wolf, 2018. "A survey on electricity market design: Insights from theory and real-world implementations of capacity remuneration mechanisms," Working Paper Series in Production and Energy 27, Karlsruhe Institute of Technology (KIT), Institute for Industrial Production (IIP).
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