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Cross-border Effects of Capacity Remuneration Mechanisms: The Swiss Case

Florian Zimmermann, Andreas Bublitz, Dogan Keles, and Wolf Fichtner

Year: 2021
Volume: Volume 42
Number: Number 2
DOI: 10.5547/01956574.42.2.fzim
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Abstract:
In this article, cross-border effects of different market design options are analyzed using Switzerland, which is strongly interconnected to larger neighboring markets, as a case study. An investigation is conducted with an agent-based model where in one scenario, all market designs are represented according to the current legislation, and in another, energy-only markets (EOM) are assumed in all considered countries. The results show that wholesale electricity prices are highly dependent on the chosen market design and in the annual average are up to 27% higher in the EOM scenario. Due to expected larger interconnector capacities, this increase is evident in all simulated markets. Furthermore, the results indicate that the planned market design changes in the neighboring countries decrease investments in Switzerland. However, generation adequacy is still guaranteed due to the high Swiss hydropower storage capacity. Our results suggest that, under the current circumstances, a domestic mechanism in Switzerland is not required.



On the Role of Risk Aversion and Market Design in Capacity Expansion Planning

Christoph Fraunholz, Kim K. Miskiw, Emil Kraft, Wolf Fichtner, and Christoph Weber

Year: 2023
Volume: Volume 44
Number: Number 3
DOI: 10.5547/01956574.44.2.cfra
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Abstract:
Investment decisions in competitive power markets are based upon thorough profitability assessments. Thereby, investors typically show a high degree of risk aversion, which is the main argument for capacity mechanisms being implemented around the world. In order to investigate the interdependencies between investors' risk aversion and market design, we extend the agent-based electricity market model PowerACE to account for long-term uncertainties. This allows us to model capacity expansion planning from an agent perspective and with different risk preferences. The enhanced model is then applied in a multi-country case study of the European electricity market. Our results show that assuming risk-averse rather than risk-neutral investors leads to slightly reduced investments in dispatchable capacity, higher wholesale electricity prices, and reduced levels of resource adequacy. These effects are more pronounced in an energy-only market than under a capacity mechanism. Moreover, uncoordinated changes in market design may also lead to negative cross-border effects.





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