Capacity Choices in Liberalised Electricity Markets

Energy Policy (37), pp. 2574-2581 (2009)

9 Pages Posted: 14 Apr 2016

See all articles by Fidel Castro Rodríguez

Fidel Castro Rodríguez

University of Vigo

Pedro L. Marin

Universidad Carlos III de Madrid - Department of Economics; Centre for Economic Policy Research (CEPR)

Georges Siotis

Universidad Carlos III de Madrid - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: April 14, 2009

Abstract

This paper addresses the issue of investment in electricity generation in the context of a liberalised market. We use the main results derived from a theoretical model where firms invest strategically to simulate the Spanish electricity system with real-world data. Our results indicate that, under reasonable parameter constellations regarding the number of agents, the level of capacity resulting from private decisions falls well short of the social optimum. Last, we show that two regulatory mechanisms that have been used to generate additional incentives for private agents to install capacity (capacity payment and price-adder) are ineffective and/or prohibitively costly.

Keywords: Electricity, Capacity, Long-run investment

JEL Classification: L13, L43, L94

Suggested Citation

Castro Rodríguez, Fidel and Marin, Pedro L. and Siotis, Georges, Capacity Choices in Liberalised Electricity Markets (April 14, 2009). Energy Policy (37), pp. 2574-2581 (2009), Available at SSRN: https://ssrn.com/abstract=2763772

Fidel Castro Rodríguez

University of Vigo ( email )

Departamento de Fundamentos del Analisis Economico
E-36200 Vigo
Spain
+34 98 681 2526 (Phone)
+34 98 681 2401 (Fax)

Pedro L. Marin

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34 91 624 9646 (Phone)
+34 91 624 9875 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Georges Siotis (Contact Author)

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34 91 624 9312 (Phone)
+34 91 624 9875 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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