Cross-border effects of capacity mechanisms in interconnected power systems
Pradyumna C. Bhagwat (TU Delft - Energy and Industry, European University Institute)
Jörn C. Richstein (Deutsches Institut für Wirtschaftsforschung, TU Delft - Energy and Industry)
Emile J.L. Chappin (TU Delft - Energy and Industry)
Kaveri K. Iychettira (TU Delft - Energy and Industry)
Laurens J. De Vries (TU Delft - Energy and Industry)
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Abstract
The cross-border effects of a capacity market and a strategic reserve in interconnected electricity markets are modeled using an agent-based modeling methodology. Both capacity mechanisms improve the security of supply and reduce consumer costs. Our results indicate that interconnections do not affect the effectiveness of a capacity market, while a strategic reserve is affected negatively. The neighboring zone may free ride on the security of supply provided by the zone implementing a capacity mechanism. However, a capacity market causes crowding out of generators in the energy-only zone. A strategic reserve implemented by this region could aid in mitigating this risk.
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