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A multi-regional model of electric resource adequacy

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  • Crampes, Claude
  • Salant, David

Abstract

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.

Suggested Citation

  • Crampes, Claude & Salant, David, 2018. "A multi-regional model of electric resource adequacy," TSE Working Papers 18-877, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:32308
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    References listed on IDEAS

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    1. Paul Joskow & Jean Tirole, 2007. "Reliability and competitive electricity markets," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 60-84, March.
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    6. Finon, Dominique & Pignon, Virginie, 2008. "Electricity and long-term capacity adequacy: The quest for regulatory mechanism compatible with electricity market," Utilities Policy, Elsevier, vol. 16(3), pages 143-158, September.
    7. Joskow, Paul L., 2008. "Capacity payments in imperfect electricity markets: Need and design," Utilities Policy, Elsevier, vol. 16(3), pages 159-170, September.
    8. Dominique Finon & Virginie Pignon, 2008. "Electricity and long-term capacity adequacy: The quest for regulatory mechanism compatible with electricity market," Post-Print hal-00716312, HAL.
    9. Cepeda, Mauricio & Finon, Dominique, 2011. "Generation capacity adequacy in interdependent electricity markets," Energy Policy, Elsevier, vol. 39(6), pages 3128-3143, June.
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Fabra, Natalia, 2018. "A primer on capacity mechanisms," Energy Economics, Elsevier, vol. 75(C), pages 323-335.
    2. Mier, Mathias, 2021. "Efficient pricing of electricity revisited," Energy Economics, Elsevier, vol. 104(C).

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    More about this item

    Keywords

    Capacity adequacy; Electricity trade; Capacity adequacy; Capacity credits; Cooperation; Value of loss load;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • F10 - International Economics - - Trade - - - General
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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