Chapter

Ensuring Generation Adequacy in Competitive Electricity Markets

Shmuel S. Oren

in Electricity Deregulation

Published by University of Chicago Press

Published in print August 2005 | ISBN: 9780226308562
Published online February 2013 | e-ISBN: 9780226308586 | DOI: http://dx.doi.org/10.7208/chicago/9780226308586.003.0011
Ensuring Generation Adequacy in Competitive Electricity Markets

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This chapter examines how electricity markets should be designed to ensure that adequate generation capacity is available to meet demand. It explains that the role of capacity payments in ensuring adequacy of supply can be fulfilled by risk-management approaches and hedging instruments that permit diverse choices and promote demand-side participation. This chapter also proposes setting capacity requirements with secondary markets that enable trading of capacity reserves is the preferred approach when energy markets are not sufficiently developed to provide correct market signals for generation investment.

Keywords: electricity markets; generation capacity; capacity payments; risk-management approaches; hedging instruments; demand-side participation; market signals

Chapter.  9731 words.  Illustrated.

Subjects: Econometrics and Mathematical Economics

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