Electricity and long term capacity adequacy

The quest for regulatory mechanism compatible with electricity market

Summary : the paper deals with theoretical aspects of long term electricity supply security. Market prices and contractual arrangements on the physical and financial electricity markets do not allow to create sufficient incentives to invest in adequate capacity for guaranteeing the appropriate level of supply in every circumstance. The long term security of supply by capacity adequacy must be conceptualised as a collective good. Alternative solutions to reach capacity adequacy which have been adopted in different markets are successively considered: public procurement of strategic reserves, capacity payment, capacity obligation with exchangeable rights. Each one presents theoretical limits and practical drawbacks when implemented in complex markets. That brings out the interest of mechanism of centralised auctions for forward capacity contracts (or reliability options); it combines controls by quantity and by price while stabilizing investment in peak power plants and is compatible with energy and reserves markets, that is not the case of the three other instruments.

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