IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v144y2020ics0301421520304122.html
   My bibliography  Save this article

Economic consequences of a capacity market implementation: The case of Poland

Author

Listed:
  • Komorowska, Aleksandra
  • Benalcazar, Pablo
  • Kaszyński, Przemysław
  • Kamiński, Jacek

Abstract

This paper investigates the potential economic consequences of setting up a capacity market in Poland. A computable model of the Polish power generation system is developed and employed to analyse the impact of this mechanism. Two scenarios are designed for this study: (i) a reference scenario that reflects the energy-only market and (ii) a capacity market scenario that assumes the implementation of such an instrument. To assess the economic consequences, the following parameters are estimated: (i) annual electricity prices, (ii) Loss Of Load Hours, (iii) Expected Energy Not Served, and only for the capacity market scenario: (iv) market clearing price, (v) total budget of the capacity market, and (vi) increase in electricity price due to the introduction of the capacity market. The findings of the study indicate that the long-term maintenance of the energy-only market results in higher electricity prices when compared to putting a capacity market into operation. Introducing a capacity market enables existing resources to be used effectively without excessive capital expenditure. The methods and conclusions presented in this paper provide valuable findings and policy insights regarding the potential economic consequences of a capacity mechanism in a power system mostly dominated by coal and undergoing an energy transition.

Suggested Citation

  • Komorowska, Aleksandra & Benalcazar, Pablo & Kaszyński, Przemysław & Kamiński, Jacek, 2020. "Economic consequences of a capacity market implementation: The case of Poland," Energy Policy, Elsevier, vol. 144(C).
    • Handle: RePEc:eee:enepol:v:144:y:2020:i:c:s0301421520304122
    DOI: 10.1016/j.enpol.2020.111683
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301421520304122
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.enpol.2020.111683?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hary, Nicolas & Rious, Vincent & Saguan, Marcelo, 2016. "The electricity generation adequacy problem: Assessing dynamic effects of capacity remuneration mechanisms," Energy Policy, Elsevier, vol. 91(C), pages 113-127.
    2. Paul Joskow & Jean Tirole, 2007. "Reliability and competitive electricity markets," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 60-84, March.
    3. Dagoumas, Athanasios S. & Polemis, Michael L., 2017. "An integrated model for assessing electricity retailer’s profitability with demand response," Applied Energy, Elsevier, vol. 198(C), pages 49-64.
    4. Simona Bigerna, Carlo Andrea Bollino and Paolo Polinori, 2016. "Renewable Energy and Market Power in the Italian Electricity Market," The Energy Journal, International Association for Energy Economics, vol. 0(Bollino-M).
    5. Bhagwat, Pradyumna C. & Richstein, Jörn C. & Chappin, Emile J.L. & Iychettira, Kaveri K. & De Vries, Laurens J., 2017. "Cross-border effects of capacity mechanisms in interconnected power systems," Utilities Policy, Elsevier, vol. 46(C), pages 33-47.
    6. Joseph Bowring, 2013. "Capacity Markets in PJM," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    7. Christoph Weber, 2005. "Uncertainty in the Electric Power Industry," International Series in Operations Research and Management Science, Springer, number 978-0-387-23048-1, April.
    8. Peter Cramton & Axel Ockenfels, 2012. "Economics and Design of Capacity Markets for the Power Sector," Papers of Peter Cramton 12cocap, University of Maryland, Department of Economics - Peter Cramton, revised 2012.
    9. Cyril Martin de Lagarde & Frédéric Lantz, 2018. "How renewable production depresses electricity prices: Evidence from the German market," Post-Print hal-01985024, HAL.
    10. Cramton, Peter & Stoft, Steven, 2008. "Forward reliability markets: Less risk, less market power, more efficiency," Utilities Policy, Elsevier, vol. 16(3), pages 194-201, September.
    11. Bhagwat, Pradyumna C. & Marcheselli, Anna & Richstein, Jörn C. & Chappin, Emile J. L. & Vries, Laurens J. De, 2017. "An analysis of a forward capacity market with long-term contracts," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 111, pages 255-267.
    12. Bhagwat, Pradyumna C. & Richstein, Jörn C. & Chappin, Emile J.L. & Iychettira, Kaveri K. & Vries, Laurens J. De, 2017. "Cross-border effects of capacity mechanisms in interconnected power systems," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 46, pages 33-47.
    13. De Vries, Laurens J., 2007. "Generation adequacy: Helping the market do its job," Utilities Policy, Elsevier, vol. 15(1), pages 20-35, March.
    14. Cepeda, Mauricio & Finon, Dominique, 2011. "Generation capacity adequacy in interdependent electricity markets," Energy Policy, Elsevier, vol. 39(6), pages 3128-3143, June.
    15. Streimikiene, Dalia & Roos, Inge, 2009. "GHG emission trading implications on energy sector in Baltic States," Renewable and Sustainable Energy Reviews, Elsevier, vol. 13(4), pages 854-862, May.
    16. Bhagwat, Pradyumna C. & Marcheselli, Anna & Richstein, Jörn C. & Chappin, Emile J.L. & De Vries, Laurens J., 2017. "An analysis of a forward capacity market with long-term contracts," Energy Policy, Elsevier, vol. 111(C), pages 255-267.
    17. Bhagwat, Pradyumna C. & Iychettira, Kaveri K. & Richstein, Jörn C. & Chappin, Emile J.L. & De Vries, Laurens J., 2017. "The effectiveness of capacity markets in the presence of a high portfolio share of renewable energy sources," Utilities Policy, Elsevier, vol. 48(C), pages 76-91.
    18. Petitet, Marie & Finon, Dominique & Janssen, Tanguy, 2017. "Capacity adequacy in power markets facing energy transition: A comparison of scarcity pricing and capacity mechanism," Energy Policy, Elsevier, vol. 103(C), pages 30-46.
    19. Bhagwat, Pradyumna C. & Iychettira, Kaveri K. & Richstein, Jörn C. & Chappin, Emile J.L. & Vries, Laurens J. De, 2017. "The effectiveness of capacity markets in the presence of a high portfolio share of renewable energy sources," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 48, pages 76-91.
    20. Kathleen Spees & Samuel A. Newell & Johannes P. Pfeifenberger, 2013. "Capacity Markets - Lessons Learned from the First Decade," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    21. Gasparatos, Alexandros & Gadda, Tatiana, 2009. "Environmental support, energy security and economic growth in Japan," Energy Policy, Elsevier, vol. 37(10), pages 4038-4048, October.
    22. Bhagwat, Pradyumna C. & de Vries, Laurens J. & Hobbs, Benjamin F., 2016. "Expert survey on capacity markets in the US: Lessons for the EU," Utilities Policy, Elsevier, vol. 38(C), pages 11-17.
    23. Bigerna, Simona & Andrea Bollino, Carlo & Polinori, Paolo, 2015. "Marginal cost and congestion in the Italian electricity market: An indirect estimation approach," Energy Policy, Elsevier, vol. 85(C), pages 445-454.
    24. Dagoumas, Athanasios S. & Koltsaklis, Nikolaos E., 2019. "Review of models for integrating renewable energy in the generation expansion planning," Applied Energy, Elsevier, vol. 242(C), pages 1573-1587.
    25. Jaffe, Adam B. & Felder, Frank A., 1996. "Should electricity markets have a capacity requirement? If so, how should it be priced?," The Electricity Journal, Elsevier, vol. 9(10), pages 52-60, December.
    26. Cyril Martin de Lagarde & Frédéric Lantz, 2018. "How renewable production depresses electricity prices: Evidence from the German market," Post-Print hal-01986207, HAL.
    27. Hasani, Masoud & Hosseini, Seyed Hamid, 2011. "Dynamic assessment of capacity investment in electricity market considering complementary capacity mechanisms," Energy, Elsevier, vol. 36(1), pages 277-293.
    28. Ventosa, Mariano & Baillo, Alvaro & Ramos, Andres & Rivier, Michel, 2005. "Electricity market modeling trends," Energy Policy, Elsevier, vol. 33(7), pages 897-913, May.
    29. Koltsaklis, Nikolaos E. & Dagoumas, Athanasios S. & Panapakidis, Ioannis P., 2017. "Impact of the penetration of renewables on flexibility needs," Energy Policy, Elsevier, vol. 109(C), pages 360-369.
    30. Milstein, Irena & Tishler, Asher, 2019. "On the effects of capacity payments in competitive electricity markets: Capacity adequacy, price cap, and reliability," Energy Policy, Elsevier, vol. 129(C), pages 370-385.
    31. Nyamdash, Batsaikhan & Denny, Eleanor, 2013. "The impact of electricity storage on wholesale electricity prices," Energy Policy, Elsevier, vol. 58(C), pages 6-16.
    32. Gelengul KOCASLAN, 2014. "International Energy Security Indicators and Turkey s Energy Security Risk Score," International Journal of Energy Economics and Policy, Econjournals, vol. 4(4), pages 735-743.
    33. Gary, Shayne & Larsen, Erik Reimer, 2000. "Improving firm performance in out-of-equilibrium, deregulated markets using feedback simulation models," Energy Policy, Elsevier, vol. 28(12), pages 845-855, October.
    34. Martin de Lagarde, Cyril & Lantz, Frédéric, 2018. "How renewable production depresses electricity prices: Evidence from the German market," Energy Policy, Elsevier, vol. 117(C), pages 263-277.
    35. Ralf Gollmer & Matthias Nowak & Werner Römisch & Rüdiger Schultz, 2000. "Unit commitment in power generation – a basic model and some extensions," Annals of Operations Research, Springer, vol. 96(1), pages 167-189, November.
    36. Gil, Hugo A. & Gomez-Quiles, Catalina & Riquelme, Jesus, 2012. "Large-scale wind power integration and wholesale electricity trading benefits: Estimation via an ex post approach," Energy Policy, Elsevier, vol. 41(C), pages 849-859.
    37. Assili, Mohsen & Javidi D.B., M. Hossein & Ghazi, Reza, 2008. "An improved mechanism for capacity payment based on system dynamics modeling for investment planning in competitive electricity environment," Energy Policy, Elsevier, vol. 36(10), pages 3703-3713, October.
    38. Li, Gong & Shi, Jing & Qu, Xiuli, 2011. "Modeling methods for GenCo bidding strategy optimization in the liberalized electricity spot market–A state-of-the-art review," Energy, Elsevier, vol. 36(8), pages 4686-4700.
    39. Jebaraj, S. & Iniyan, S., 2006. "A review of energy models," Renewable and Sustainable Energy Reviews, Elsevier, vol. 10(4), pages 281-311, August.
    40. Bazmi, Aqeel Ahmed & Zahedi, Gholamreza, 2011. "Sustainable energy systems: Role of optimization modeling techniques in power generation and supply—A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(8), pages 3480-3500.
    41. Robin Smale & Murray Hartley & Cameron Hepburn & John Ward & Michael Grubb, 2006. "The impact of CO 2 emissions trading on firm profits and market prices," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 31-48, January.
    42. Lion Hirth, 2018. "What caused the drop in European electricity prices? A factor decomposition analysis," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    43. Le, Thai-Ha & Nguyen, Canh Phuc, 2019. "Is energy security a driver for economic growth? Evidence from a global sample," Energy Policy, Elsevier, vol. 129(C), pages 436-451.
    44. Peter Cramton & Axel Ockenfels & Steven Stoft, 2013. "Capacity Market Fundamentals," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    45. Wilson, James F., 2010. "Forward Capacity Market CONEfusion," The Electricity Journal, Elsevier, vol. 23(9), pages 25-40, November.
    46. Lopion, Peter & Markewitz, Peter & Robinius, Martin & Stolten, Detlef, 2018. "A review of current challenges and trends in energy systems modeling," Renewable and Sustainable Energy Reviews, Elsevier, vol. 96(C), pages 156-166.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tomasz Zema & Adam Sulich, 2022. "Models of Electricity Price Forecasting: Bibliometric Research," Energies, MDPI, vol. 15(15), pages 1-18, August.
    2. Malec, Marcin, 2022. "The prospects for decarbonisation in the context of reported resources and energy policy goals: The case of Poland," Energy Policy, Elsevier, vol. 161(C).
    3. Aleksandra Komorowska, 2021. "Can Decarbonisation and Capacity Market Go Together? The Case Study of Poland," Energies, MDPI, vol. 14(16), pages 1-35, August.
    4. Krzysztof Zamasz & Jakub Stęchły & Aleksandra Komorowska & Przemysław Kaszyński, 2021. "The Impact of Fleet Electrification on Carbon Emissions: A Case Study from Poland," Energies, MDPI, vol. 14(20), pages 1-17, October.
    5. Jarosław Kulpa & Paweł Kamiński & Kinga Stecuła & Dariusz Prostański & Piotr Matusiak & Daniel Kowol & Michał Kopacz & Piotr Olczak, 2021. "Technical and Economic Aspects of Electric Energy Storage in a Mine Shaft—Budryk Case Study," Energies, MDPI, vol. 14(21), pages 1-14, November.
    6. Jerzy Andruszkiewicz & Józef Lorenc & Agnieszka Weychan, 2021. "Price-Based Demand Side Response Programs and Their Effectiveness on the Example of TOU Electricity Tariff for Residential Consumers," Energies, MDPI, vol. 14(2), pages 1-21, January.
    7. Mou, Yuting & Papavasiliou, Anthony & Hartz, Katharina & Dusolt, Alexander & Redl, Christian, 2023. "An analysis of shortage pricing and capacity remuneration mechanisms on the pan-European common energy market," Energy Policy, Elsevier, vol. 183(C).
    8. Christos K. Simoglou & Pandelis N. Biskas, 2023. "Capacity Mechanisms in Europe and the US: A Comparative Analysis and a Real-Life Application for Greece," Energies, MDPI, vol. 16(2), pages 1-32, January.
    9. Viktor Koval & Oksana Borodina & Iryna Lomachynska & Piotr Olczak & Anzor Mumladze & Dominika Matuszewska, 2022. "Model Analysis of Eco-Innovation for National Decarbonisation Transition in Integrated European Energy System," Energies, MDPI, vol. 15(9), pages 1-19, May.
    10. Piotr Olczak & Dominika Matuszewska, 2023. "Energy Storage Potential Needed at the National Grid Scale (Poland) in Order to Stabilize Daily Electricity Production from Fossil Fuels and Nuclear Power," Energies, MDPI, vol. 16(16), pages 1-11, August.
    11. Przemysław Kaszyński & Aleksandra Komorowska & Krzysztof Zamasz & Grzegorz Kinelski & Jacek Kamiński, 2021. "Capacity Market and (the Lack of) New Investments: Evidence from Poland," Energies, MDPI, vol. 14(23), pages 1-17, November.
    12. Wojciech Drożdż & Grzegorz Kinelski & Marzena Czarnecka & Magdalena Wójcik-Jurkiewicz & Anna Maroušková & Grzegorz Zych, 2021. "Determinants of Decarbonization—How to Realize Sustainable and Low Carbon Cities?," Energies, MDPI, vol. 14(9), pages 1-19, May.
    13. Komorowska, Aleksandra & Kaszyński, Przemysław & Kamiński, Jacek, 2023. "Where does the capacity market money go? Lessons learned from Poland," Energy Policy, Elsevier, vol. 173(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bublitz, Andreas & Keles, Dogan & Zimmermann, Florian & Fraunholz, Christoph & Fichtner, Wolf, 2019. "A survey on electricity market design: Insights from theory and real-world implementations of capacity remuneration mechanisms," Energy Economics, Elsevier, vol. 80(C), pages 1059-1078.
    2. 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).
    3. Khan, Agha Salman M. & Verzijlbergh, Remco A. & Sakinci, Ozgur Can & De Vries, Laurens J., 2018. "How do demand response and electrical energy storage affect (the need for) a capacity market?," Applied Energy, Elsevier, vol. 214(C), pages 39-62.
    4. Keppler, Jan Horst & Quemin, Simon & Saguan, Marcelo, 2022. "Why the sustainable provision of low-carbon electricity needs hybrid markets," Energy Policy, Elsevier, vol. 171(C).
    5. Bhagwat, Pradyumna C. & Marcheselli, Anna & Richstein, Jörn C. & Chappin, Emile J.L. & De Vries, Laurens J., 2017. "An analysis of a forward capacity market with long-term contracts," Energy Policy, Elsevier, vol. 111(C), pages 255-267.
    6. Brito-Pereira, Paulo & Rodilla, Pablo & Mastropietro, Paolo & Batlle, Carlos, 2022. "Self-fulfilling or self-destroying prophecy? The relevance of de-rating factors in modern capacity mechanisms," Applied Energy, Elsevier, vol. 314(C).
    7. Simshauser, Paul, 2020. "Merchant renewables and the valuation of peaking plant in energy-only markets," Energy Economics, Elsevier, vol. 91(C).
    8. David Newbery and Michael Grubb, 2015. "Security of Supply, the Role of Interconnectors and Option Values : insights from the GB Capacity Auction," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    9. Bhagwat, Pradyumna C. & Iychettira, Kaveri K. & Richstein, Jörn C. & Chappin, Emile J.L. & De Vries, Laurens J., 2017. "The effectiveness of capacity markets in the presence of a high portfolio share of renewable energy sources," Utilities Policy, Elsevier, vol. 48(C), pages 76-91.
    10. Simshauser, Paul, 2022. "Rooftop solar PV and the peak load problem in the NEM's Queensland region," Energy Economics, Elsevier, vol. 109(C).
    11. Heidarizadeh, Mohammad & Ahmadian, Mohammad, 2019. "Capacity certificate mechanism: A step forward toward a market based generation capacity incentive," Energy, Elsevier, vol. 172(C), pages 45-56.
    12. Petitet, Marie & Finon, Dominique & Janssen, Tanguy, 2017. "Capacity adequacy in power markets facing energy transition: A comparison of scarcity pricing and capacity mechanism," Energy Policy, Elsevier, vol. 103(C), pages 30-46.
    13. Bhagwat, Pradyumna C. & Richstein, Jörn C. & Chappin, Emile J.L. & Iychettira, Kaveri K. & De Vries, Laurens J., 2017. "Cross-border effects of capacity mechanisms in interconnected power systems," Utilities Policy, Elsevier, vol. 46(C), pages 33-47.
    14. Komorowska, Aleksandra & Kaszyński, Przemysław & Kamiński, Jacek, 2023. "Where does the capacity market money go? Lessons learned from Poland," Energy Policy, Elsevier, vol. 173(C).
    15. Bhagwat, Pradyumna C. & Iychettira, Kaveri K. & Richstein, Jörn C. & Chappin, Emile J.L. & Vries, Laurens J. De, 2017. "The effectiveness of capacity markets in the presence of a high portfolio share of renewable energy sources," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 48, pages 76-91.
    16. Simshauser, P., 2021. "Rooftop Solar PV and the Peak Load Problem in the NEM’s Queensland Region," Cambridge Working Papers in Economics 2180, Faculty of Economics, University of Cambridge.
    17. Mou, Yuting & Papavasiliou, Anthony & Hartz, Katharina & Dusolt, Alexander & Redl, Christian, 2023. "An analysis of shortage pricing and capacity remuneration mechanisms on the pan-European common energy market," Energy Policy, Elsevier, vol. 183(C).
    18. Bhagwat, Pradyumna C. & de Vries, Laurens J. & Hobbs, Benjamin F., 2016. "Expert survey on capacity markets in the US: Lessons for the EU," Utilities Policy, Elsevier, vol. 38(C), pages 11-17.
    19. Zappa, William & Junginger, Martin & van den Broek, Machteld, 2021. "Can liberalised electricity markets support decarbonised portfolios in line with the Paris Agreement? A case study of Central Western Europe," Energy Policy, Elsevier, vol. 149(C).
    20. Rios, Daniel & Blanco, Gerardo & Olsina, Fernando, 2019. "Integrating Real Options Analysis with long-term electricity market models," Energy Economics, Elsevier, vol. 80(C), pages 188-205.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:144:y:2020:i:c:s0301421520304122. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.