Generation adequacy and transmission interconnection

in regional electricity markets

Summary : Power system adequacy has currently public good features that cannot be entirely solved by electricity markets. Regulatory intervention is then necessary and old methods to assess adequacy have been used to help regulators to fix this market failure. In regional electricity markets, transmission interconnections play an important role in contributing to adequacy. However adequacy problem and related policy are mainly considered at a national level. This paper presents a simple model to study how the interconnection capacity interacts with generation adequacy. First results indicate that increasing interconnection capacity between systems improves adequacy up to a certain level; then further increases do not procure any adequacy improvements. Furthermore, besides adequacy improvement, increasing transmission capacity under asymmetric adequacy criteria or national system characteristics could create several externalities concerns. These results imply that regional coordination of national adequacy policies is essential to internalize adequacy cross-border effects.

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