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SUMMARY:Capacity mechanisms and the technology mix in competitive electric
 ity markets - Pär Holmberg (Research Institute of Industrial Economics)
DTSTART:20190318T143000Z
DTEND:20190318T151500Z
UID:TALK121153@talks.cam.ac.uk
CONTACT:INI IT
DESCRIPTION:The paper is co-authored with Robert Ritz at Judge Business Sc
 hool and EPRG\, University of Cambridge. <br><br>Capacity mechanisms are p
 laying a growing role as part of electricity market design in Europe\, Nor
 th America and other jurisdictions. Yet their role remains hotly debated w
 ith some electricity systems retaining an "energy-only" market design with
 out apparent need for capacity payments. In this paper\, we introduce a ne
 w model of a capacity mechanism in a market with a continuum of generation
  technologies. We consider two policy instruments: a wholesale price cap a
 nd a capacity payment (or procured capacity volume). We show that some com
 binations of policy instruments will result in socially optimal market inv
 estments. Changing capacity payments and the price cap will only influence
  investments in peak generation plants. Investments improve system reliabi
 lity\, which is a public good. We find that capacity payments can be used 
 to internalize this externality.  We also find that capacity payments can 
 be used to mitigate market power for a given social welfare level.
LOCATION:Seminar Room 1\, Newton Institute
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