IDEAS home Printed from https://ideas.repec.org/a/eee/juipol/v39y2016icp13-28.html
   My bibliography  Save this article

The effectiveness of a strategic reserve in the presence of a high portfolio share of renewable energy sources

Author

Listed:
  • Bhagwat, Pradyumna C.
  • Richstein, Jörn C.
  • Chappin, Emile J.L.
  • de Vries, Laurens J.

Abstract

To ensure sufficient investment in electricity generation capacity, mechanisms such as strategic reserves are being considered or already implemented. We analyze the effectiveness of a strategic reserve in the presence of a growing portfolio share of renewable energy sources (RES) with EMLab-Generation, an agent-based electricity market model. A strategic reserve can stabilize investment, but within limits. Uncertainty regarding future demand may cause the market to become instable, potentially leading to periods with very high electricity prices. In the presence of a large share of variable renewable energy sources, the reserve design should be adjusted or replaced by an alternative capacity mechanism.

Suggested Citation

  • Bhagwat, Pradyumna C. & Richstein, Jörn C. & Chappin, Emile J.L. & de Vries, Laurens J., 2016. "The effectiveness of a strategic reserve in the presence of a high portfolio share of renewable energy sources," Utilities Policy, Elsevier, vol. 39(C), pages 13-28.
    • Handle: RePEc:eee:juipol:v:39:y:2016:i:c:p:13-28
    DOI: 10.1016/j.jup.2016.01.006
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0957178716300169
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jup.2016.01.006?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. Anderson, Roland & Taylor, Lewis, 1986. "The social cost of unsupplied electricity : A critical review," Energy Economics, Elsevier, vol. 8(3), pages 139-146, July.
    2. Meyer, Roland & Gore, Olga, 2015. "Cross-border effects of capacity mechanisms: Do uncoordinated market design changes contradict the goals of the European market integration?," Energy Economics, Elsevier, vol. 51(C), pages 9-20.
    3. Bushnell, James, 2010. "Building blocks: investment in renewable and non-renewable technologies," ISU General Staff Papers 201005250700001113, Iowa State University, Department of Economics.
    4. Paul Joskow & Jean Tirole, 2007. "Reliability and competitive electricity markets," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 60-84, March.
    5. Anna Creti & Jerome Pouyet & María-Eugenia Sanin, 2013. "The NOME law: implications for the French electricity market," Journal of Regulatory Economics, Springer, vol. 43(2), pages 196-213, April.
    6. Wissen, Ralf & Nicolosi, Marco, 2007. "Anmerkungen zur aktuellen Diskussion zum Merit-Order Effekt der erneuerbaren Energien," EWI Working Papers 2007-3, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    7. Leahy, Eimear & Tol, Richard S.J., 2011. "An estimate of the value of lost load for Ireland," Energy Policy, Elsevier, vol. 39(3), pages 1514-1520, March.
    8. Linares, Pedro & Rey, Luis, 2013. "The costs of electricity interruptions in Spain. Are we sending the right signals?," Energy Policy, Elsevier, vol. 61(C), pages 751-760.
    9. Brown, Marilyn A., 2001. "Market failures and barriers as a basis for clean energy policies," Energy Policy, Elsevier, vol. 29(14), pages 1197-1207, November.
    10. Paul L. Joskow, 2008. "Lessons Learned From Electricity Market Liberalization," The Energy Journal, , vol. 29(2_suppl), pages 9-42, December.
    11. De Vries, Laurens J., 2007. "Generation adequacy: Helping the market do its job," Utilities Policy, Elsevier, vol. 15(1), pages 20-35, March.
    12. Dominique Finon, 2015. "Capacity Mechanisms and Cross-Border Participation: The EU wide approach in question," Working Papers hal-01108414, HAL.
    13. 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).
    14. Woo, Chi-Keung & Lloyd, Debra & Tishler, Asher, 2003. "Electricity market reform failures: UK, Norway, Alberta and California," Energy Policy, Elsevier, vol. 31(11), pages 1103-1115, September.
    15. Borenstein, Severin & Bushnell, James & Kahn, Edward & Stoft, Steven, 1995. "Market power in California electricity markets," Utilities Policy, Elsevier, vol. 5(3-4), pages 219-236.
    16. Richstein, Jörn C. & Chappin, Émile J.L. & de Vries, Laurens J., 2015. "The market (in-)stability reserve for EU carbon emission trading: Why it might fail and how to improve it," Utilities Policy, Elsevier, vol. 35(C), pages 1-18.
    17. Mastropietro, Paolo & Rodilla, Pablo & Batlle, Carlos, 2015. "National capacity mechanisms in the European internal energy market: Opening the doors to neighbours," Energy Policy, Elsevier, vol. 82(C), pages 38-47.
    18. de Vries, Laurens & Heijnen, Petra, 2008. "The impact of electricity market design upon investment under uncertainty: The effectiveness of capacity mechanisms," Utilities Policy, Elsevier, vol. 16(3), pages 215-227, September.
    19. Rodilla, P. & Batlle, C., 2012. "Security of electricity supply at the generation level: Problem analysis," Energy Policy, Elsevier, vol. 40(C), pages 177-185.
    20. David Newbery & Michael Grubb, 2014. "The Final Hurdle?: Security of supply, the Capacity Mechanism and the role of interconnectors," Cambridge Working Papers in Economics 1433, Faculty of Economics, University of Cambridge.
    21. Richstein, Jörn C. & Chappin, Émile J.L. & de Vries, Laurens J., 2015. "Adjusting the CO2 cap to subsidised RES generation: Can CO2 prices be decoupled from renewable policy?," Applied Energy, Elsevier, vol. 156(C), pages 693-702.
    22. Baarsma, Barbara E. & Hop, J. Peter, 2009. "Pricing power outages in the Netherlands," Energy, Elsevier, vol. 34(9), pages 1378-1386.
    23. Sensfuß, Frank & Ragwitz, Mario & Genoese, Massimo, 2008. "The merit-order effect: A detailed analysis of the price effect of renewable electricity generation on spot market prices in Germany," Energy Policy, Elsevier, vol. 36(8), pages 3076-3084, August.
    24. Richstein, Jörn C. & Chappin, Emile J.L. & de Vries, Laurens J., 2014. "Cross-border electricity market effects due to price caps in an emission trading system: An agent-based approach," Energy Policy, Elsevier, vol. 71(C), pages 139-158.
    25. Praktiknjo, Aaron J. & Hähnel, Alexander & Erdmann, Georg, 2011. "Assessing energy supply security: Outage costs in private households," Energy Policy, Elsevier, vol. 39(12), pages 7825-7833.
    26. Faaij, Andre P.C., 2006. "Bio-energy in Europe: changing technology choices," Energy Policy, Elsevier, vol. 34(3), pages 322-342, February.
    27. Peter Cramton & Axel Ockenfels & Steven Stoft, 2013. "Capacity Market Fundamentals," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    28. repec:dau:papers:123456789/13152 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    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. 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.
    2. 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.
    3. 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.
    4. 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.
    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. 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).
    7. 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.
    8. 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.
    9. 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.
    10. 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).
    11. Sebastian Schäfer & Lisa Altvater, 2019. "On the functioning of a capacity market with an increasing share of renewable energy," Journal of Regulatory Economics, Springer, vol. 56(1), pages 59-84, August.
    12. Browne, Oliver & Poletti, Stephen & Young, David, 2015. "How does market power affect the impact of large scale wind investment in 'energy only' wholesale electricity markets?," Energy Policy, Elsevier, vol. 87(C), pages 17-27.
    13. Landegren, Finn & Johansson, Jonas & Samuelsson, Olof, 2019. "Quality of supply regulations versus societal priorities regarding electricity outage consequences: Case study in a Swedish context," International Journal of Critical Infrastructure Protection, Elsevier, vol. 26(C).
    14. 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).
    15. Motz, Alessandra, 2021. "Security of supply and the energy transition: The households' perspective investigated through a discrete choice model with latent classes," Energy Economics, Elsevier, vol. 97(C).
    16. Simshauser, Paul, 2022. "Rooftop solar PV and the peak load problem in the NEM's Queensland region," Energy Economics, Elsevier, vol. 109(C).
    17. Mastropietro, Paolo & Rodilla, Pablo & Rivier, Michel & Batlle, Carlos, 2024. "Reliability options: Regulatory recommendations for the next generation of capacity remuneration mechanisms," Energy Policy, Elsevier, vol. 185(C).
    18. Simshauser, Paul, 2019. "Missing money, missing policy and Resource Adequacy in Australia's National Electricity Market," Utilities Policy, Elsevier, vol. 60(C), pages 1-1.
    19. Ovaere, Marten & Heylen, Evelyn & Proost, Stef & Deconinck, Geert & Van Hertem, Dirk, 2019. "How detailed value of lost load data impact power system reliability decisions," Energy Policy, Elsevier, vol. 132(C), pages 1064-1075.
    20. Holmberg, Pär & Tangerås, Thomas, 2021. "Strategic Reserves versus Market-wide Capacity Mechanisms," Working Paper Series 1387, Research Institute of Industrial Economics.

    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:juipol:v:39:y:2016:i:c:p:13-28. 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: https://www.sciencedirect.com/journal/utilities-policy .

    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.