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Bhagwat, Pradyumna C.
Iychettira, Kaveri K.
Richstein, Jörn C.
Chappin, Emile J.L.
Vries, Laurens J. De
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[Journal:] Utilities Policy [Volume:] 48 [Pages:] 76-91 [ISSN:] 0957-1787
The effectiveness of a capacity market is analyzed by simulating three conditions that may cause suboptimal investment in the electricity generation: imperfect information and uncertainty; declining demand shocks resulting in load loss; and a growing share of renewable energy sources in the generation portfolio. Implementation of a capacity market can improve supply adequacy and reduce consumer costs. It mainly leads to more investment in low-cost peak generation units. If the administratively determined reserve margin is high enough, the security of supply is not significantly affected by uncertainties or demand shocks. A capacity market is found to be more effective than a strategic reserve for ensuring reliability.
Adequacy policy
Security of supply
Capacity markets
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