{"id":1288,"date":"2017-06-05T09:30:25","date_gmt":"2017-06-05T07:30:25","guid":{"rendered":"https:\/\/ceem-dauphine.eu\/?p=1288"},"modified":"2024-09-05T09:32:36","modified_gmt":"2024-09-05T07:32:36","slug":"rationales-for-capacity-remuneration-mechanisms-security-of-supply-externalities-and-asymmetric-investment-incentives","status":"publish","type":"post","link":"https:\/\/ceem-dauphine.eu\/en\/rationales-for-capacity-remuneration-mechanisms-security-of-supply-externalities-and-asymmetric-investment-incentives\/","title":{"rendered":"Rationales for capacity remuneration mechanisms: Security of supply externalities and asymmetric investment incentives"},"content":{"rendered":"<p>Economics so far provides little conceptual guidance on capacity remuneration mechanisms (CRM) in<br \/>\nderegulated electricity markets. Ubiquitous in real-world electricity markets, CRMs are introduced country<br \/>\nby country in an ad hoc manner, lacking the theoretical legitimacy and the conceptual coherence enabling<br \/>\ncomparability and coordination. They are eyed with suspicion by a profession wedded to a theoretical<br \/>\nbenchmark model that argues that competitive energy-only markets with VOLL pricing provide adequate<br \/>\nlevels of capacity. While the benchmark model is a consistent starting point for discussions about electricity<br \/>\nmarket design, it ignores the two market failures that make CRMs the practically appropriate and theoretically<br \/>\njustified policy response to capacity issues. First, energy-only markets fail to internalize security-of-supply<br \/>\nexternalities as involuntary curbs on demand under scarcity pricing generate social costs beyond the private<br \/>\nnon-consumption of electricity. Second, when demand is inelastic and the potential capacity additions are<br \/>\ndiscretely sized, investors face asymmetric incentives and will underinvest at the margin rather than overinvest.<br \/>\nAfter presenting the key features of the theoretical benchmark model, this paper conceptualizes security of<br \/>\nsupply externalities and asymmetric investment incentives and concludes with some consideration regarding<br \/>\ndesign of CRMs.<\/p>\n<p>Energy Policy 105 (2017)<\/p>\n","protected":false},"excerpt":{"rendered":"Economics so far provides little conceptual guidance on capacity remuneration mechanisms (CRM) in deregulated electricity markets. Ubiquitous [&hellip;]","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[13,26],"tags":[],"class_list":["post-1288","post","type-post","status-publish","format-standard","hentry","category-publications-en","category-journal-articles"],"acf":[],"_links":{"self":[{"href":"https:\/\/ceem-dauphine.eu\/en\/wp-json\/wp\/v2\/posts\/1288","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ceem-dauphine.eu\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ceem-dauphine.eu\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ceem-dauphine.eu\/en\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/ceem-dauphine.eu\/en\/wp-json\/wp\/v2\/comments?post=1288"}],"version-history":[{"count":2,"href":"https:\/\/ceem-dauphine.eu\/en\/wp-json\/wp\/v2\/posts\/1288\/revisions"}],"predecessor-version":[{"id":1292,"href":"https:\/\/ceem-dauphine.eu\/en\/wp-json\/wp\/v2\/posts\/1288\/revisions\/1292"}],"wp:attachment":[{"href":"https:\/\/ceem-dauphine.eu\/en\/wp-json\/wp\/v2\/media?parent=1288"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ceem-dauphine.eu\/en\/wp-json\/wp\/v2\/categories?post=1288"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ceem-dauphine.eu\/en\/wp-json\/wp\/v2\/tags?post=1288"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}