The Transactions of The Korean Institute of Electrical Engineers (전기학회논문지)

The Korean Institute of Electrical Engineers (대한전기학회)
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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
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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.

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References

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