Assessing cross-border integration of capacity mechanisms in coupled electricity markets

Auteurs

Mauricio Cepeda

Astract

There is momentum in a number of European electricity markets towards the implementation of national generation capacity mechanisms. This renewed interest in capacity mechanisms raises the question of the cohabitation of both relatively well-integrated short-term energy markets and national generation capacity mechanisms. This paper examines a key issue of generation adequacy policies in a multi-market environment: the effect of foreign generators and interconnectors’ inclusion in national capacity mechanisms. The results show that the absence of cross-border participation could lead to significant social welfare losses associated with over- and under- capacity procuring risk. We also find that the inclusion of foreign generators in national capacity markets increases efficiency relative to the case where only interconnectors can participate.