Evaluation of power market designs on investment incentives and capacity adequacy

Cai Shenghua and Tetsuo Tezuka

Strategic Study of CAE ›› 2008, Vol. 10 ›› Issue (2) : 61-68.

PDF(171 KB)
PDF(171 KB)
Strategic Study of CAE ›› 2008, Vol. 10 ›› Issue (2) : 61-68.

Evaluation of power market designs on investment incentives and capacity adequacy

  • Cai Shenghua and Tetsuo Tezuka
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Abstract

Electricity industry restructuring should not sacrifice supply security to pursue economic efficiency. Till now there is no academic consensus on which electricity market design provides the least distorting investment incentives. Alternative approaches that have been adopted around the world for ensuring the appropriate level of investment in electric generation capacity are discussed, and much attention is devoted on the evaluation of capacity payment systems. The finding is that on one hand, capacity payment systems have good effect on reducing spot market price volatility and increasing the volume of generating capacity at the costs of relatively high total electricity prices; on the other hand, however, they are not robust against either the abuse of market power in the energy market or being manipulated.

Keywords

electricity industry restructuring / capacity adequacy / investment / evaluation / robustness

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Cai Shenghua and Tetsuo Tezuka. Evaluation of power market designs on investment incentives and capacity adequacy. Strategic Study of CAE, 2008, 10(2): 61‒68
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