DOI QR코드

DOI QR Code

Moral Hazard for the Available Capacity in Electricity Capacity Markets

용량시장의 발전가능용량 전략적 입찰 분석

  • Received : 2010.09.24
  • Accepted : 2010.11.25
  • Published : 2010.12.01

Abstract

In this paper, we investigate how an electricity capacity market design may encourage generators to exaggerate their available capacity. In order for an analytical approach, a two player game model is introduced. We focus on two pure strategy Nash equilibria: an equilibrium at which generators offer their true capacities, and an equilibrium at which generators offer exaggerated capacities. The latter case is caused by asymmetries of information between players and so called 'moral hazard' in terms of the economics literature. This paper shows that, considering practical electricity markets, the moral hazard case is highly probable. Moreover, it is shown that, with the considered capacity market design in the real world, the better the electricity energy market performs, the higher the risk of moral hazard becomes.

Keywords

References

  1. P. CRAMTON, P.: 'Review of the reserves and operable capacity markets: New England's experience in the first four months', White Paper, Market Design Inc., 1999
  2. BESSER, J.G., FARR, J.G. and TIERNEY, S.F.: 'The political economy of long-term generation adequacy: Why an ICAP mechanism is needed as part of standard market design', The Electricity Journal, Aug./Sept. 2002, Vol. 15, No. 7, pp. 53-62 https://doi.org/10.1016/S1040-6190(02)00349-4
  3. CRETI, A. and FABRA, N.: 'Capacity markets for electricity', Center for the Study of Energy Markets, Paper CSEMWP-124, Feb. 2004
  4. STOFT, S.: 'The demand for operating reserves: Key to price spikes and inverstment', IEEE Trans. on Power Systems, May 2003, Vol. 18, No. 2, pp. 470-478 https://doi.org/10.1109/TPWRS.2003.810679
  5. OREN, S.: 'Generation adequacy via call options obligations: safe passage to the promised land', The Electricity Journal, Nov. 2005, Vol. 18, No. 9, pp. 28-42 https://doi.org/10.1016/j.tej.2005.10.003
  6. CHAO, H.P. and WILSON, R. 'Resource adequacy and market power mitigation via option contracts', Electric Power Research Institute, Draft, March18,2004
  7. CRAMTON, P. and STOFT, S.: 'A capacity market that makes sense', The Electricity Journal, Aug./Sept. 2005, Vol. 18, No. 7, pp. 43-54 https://doi.org/10.1016/j.tej.2005.07.003
  8. MAS-COLELL, A. and WHINSTON, M.D.: 'Microeconomic Theory' (Oxford University Press, Inc., 1995)
  9. HART, O.D. and HOLMSTROM, B.: 'The theory of contracts' in Advances in Economic Theory (Fifth World Congress, edited by T. Bewely, New York: Cambridge University Press, 1987)