Reliability Options: Can They Deliver on Their Promises?

15 Pages Posted: 26 Mar 2019

See all articles by Pradyumna Bhagwat

Pradyumna Bhagwat

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Leonardo Meeus

European University Institute; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Date Written: March 2019

Abstract

Capacity mechanisms have been controversial in theory as well as practice. Lessons from experience with different capacity mechanisms led to the development of the reliability options. This mechanism promises two advantages over other types of capacity mechanisms. Firstly, it ensures the availability of capacity contracted via the capacity mechanism during scarcity. Secondly, the reliability option mechanism limits any energy market distortion due to its implementation and provides the consumer a hedge from high prices. We assess the ability of reliability options in delivering the two promises by analysing the reliability option designs in Italy and Ireland. We find that they deliver on the first promise but only partly on the second.

Keywords: adequacy policy; capacity mechanisms; reliability options

Suggested Citation

Bhagwat, Pradyumna and Meeus, Leonardo, Reliability Options: Can They Deliver on Their Promises? (March 2019). Robert Schuman Centre for Advanced Studies Research Paper No. RSCAS 2019/21, Available at SSRN: https://ssrn.com/abstract=3359701 or http://dx.doi.org/10.2139/ssrn.3359701

Pradyumna Bhagwat (Contact Author)

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Leonardo Meeus

European University Institute ( email )

Fiesole, Tuscany
Italy

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

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