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Faculty of Economics

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Tangeras, T.

Equilibrium supply security in a multinational electricity market with renewable production

CWPE1716

Abstract: An increasing reliance on solar and wind power has raised concern about system ability to consistently satisfy electricity demand. This paper examines countries' unilateral incentives to achieve supply security through capacity reserves and market integration in a multinational electricity market. Capacity reserves protect consumers against blackouts and extreme prices, but distort consumption and investment. Market integration alleviates supply constraints, but requires costly network reinforcement. Capacity reserves can be up- or downward distorted, but network investment is always insufficient in equilibrium. Capacity reserves are smaller when there are financial markets or when dispatched solely to resolve domestic supply constraints.

Keywords: Capacity mechanism, decentralized policy making, multinational

JEL Codes: D24 H23 L94 Q48

PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1716.pdf

EPRG Paper Link: 1707

Open Access Link: https://doi.org/10.17863/CAM.39162