Delivering investment for a reliable power supply to consumers at a reasonable cost has always been a central objective of power market design, and various approaches to this challenge have been adopted in Europe and elsewhere. Where a competitive wholesale energy market has been adopted, as in Europe, energy prices are intended to be the primary driver of both short-term and long-term decisions by market actors. However, some stakeholders maintain that the energy market alone cannot or will not drive needed investment. In this view, a source of additional payments is needed to ensure that adequate capacity is available to maintain system reliability.Today, the debate around market design and system adequacy in Poland, Germany, and Europe has heated up. It has been driven by several interlinked concerns: Is there adequate generation to meet demand over the next few years? How does the increasing penetration of variable renewable resources affect the calculus? What role should cross-border exchanges play in assessing resource availability? And lastly, are energy markets falling short of providing the short- and long- term price signals needed to maintain system reliability, and if so, what else is needed?This paper provides an overview of the new challenges that system planners and market designers face and offers some thoughts about how to frame the discussion to move it forward.
Market Mechanisms for Resource Adequacy and System Security: Framing the Issues
May 20, 2014
- By
- Michael Hogan ,
- Jan Rączka ,
- Frederick Weston ,
- Edith Bayer