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Ensuring Generation Adequacy in Competitive Electricity Markets

Ensuring Generation Adequacy in Competitive Electricity Markets

Chapter:
(p.388) 10 Ensuring Generation Adequacy in Competitive Electricity Markets
Source:
Electricity Deregulation
Author(s):
Shmuel S. Oren
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226308586.003.0011

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

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