8th session of seminars on research in energy economics at paris-sciences-lettres
Abstract
FAUT-IL METTRE EN PLACE UN MÉCANISME DE CAPACITÉ DANS UN MARCHÉ ÉLECTRIQUE?
Wednesday December 11, 2013, from 16h30 to 18h30
School of Mines Paris Tech
60 Boulevard Saint-Michel
75006 Paris
PROGRAM AND SLIDES
The Seminar on Research in Energy Economics at Paris-Sciences-Lettres is jointly organized by the CERNA, the CGEMP, the Chaire European Electricity Markets, Mines ParisTech and University Paris-Dauphine. It is animated by François LEVEQUE (CERNA et MINES PARIS TECH) and Dominique FINON (Chaire European Electricity Markets, CNRS-CIRED).
Thomas-Olivier LEAUTIER (Membre de l’Institut d’Économie Industrielle (IDEI), Chercheur à la Toulouse School of Economics (TSE), professeur de gestion à l’Université de Toulouse 1)
“The visible Hand: Ensuring optimal investment in electric power generation”:
Presentation.
Article sur The visible hand: Perspectives on capacity markets and mechanisms
Summary
The presentation will formally analyze the causes of underinvestment in electric power generation, and the various corrective market designs that have been proposed and implemented. It yields four main analytical findings.
First, using a simple numerical example, (a linear demand function, calibrated on the French power load duration curve), strategic supply reduction is shown to be a more important cause of underinvestment than the imposition of a price cap.
Second, physical capacity certificates markets implemented the United States restore optimal investment, but increase producers’ profits, beyond the imperfect competition level.
Third, financial reliability options, proposed in many markets, fail to restore investment incentives. If a “no short sale” condition is added, they are equivalent to physical capacity certificates.
Finally, if competition is perfect, energy only markets yield a negligible underinvestment compared to the optimum. Taken together, these findings suggest that, to ensure generation adequacy, policy makers should put more effort on enforcing competitive behavior in the energy markets, and less on designing additional markets.
