Capacity Mechanisms on the Central European Electricity Market: Effects on Prices, Profits, and Welfare. Berlin Conference on Electricity Economics

Transcription

1 DIW Berlin German Institute for Economic Research Capacity Mechanisms on the Central European Electricity Market: Effects on Prices, Profits, and Welfare Berlin Conference on Electricity Economics Modeling and Policy in the Energy Transformation Germany, Europe, and Beyond

2 1. Introduction and Policy Proposals 2. Modeling Approach and Scenarios 3. Results 4. Discussion

3 1 Introduction/Literature Peak-Load-Pricing: Boiteaux 1949: MC + β, i.e. optimal pricing (under certainty) Crew and Kleindorfer1976 (uncertain demand), Chao 1983 (uncertain supply) Market Failure related to security of supply (Müsgens and Peek 2011) -Insufficiently elastic demand (not anticipated stochastic shocks) -Security of supply as public good (Non excludability: technical given metering; Non rivalry: No) Cramton et. al (2013): Capacity market purpose is to Provide the amount of capacities that optimizes the duration of black-outs.

4 2 Proposals and Implementation Strategic Reserve (SR) Centalized Capacity Market (CCM) defines extrema Decentralized Capacity Market (DCM) Regulator Dispatch Proposals Model sets capacity target estimates capacity estimates demand fee duty to serve only at extrema temporarymeasure until 2017 (minor size) broadwith mandatory price insurance focused: differentiated new/old PPs large with 2020 target broad without price insurance no penalties sets supply obligation verifies capacity verifies demand duty to serve at extrema not at normal peak mandatory(france) voluntary(vku) mandatory

5 3 Model Markets: Germany, Poland and France interconnected Perfect foresight market equilibrium model with dispatch and investment decisions up to Investment options: Gas GT and CC; Hard Coal; Gas Retrofit Policies modeled as conditions for relation of peak load to firm capacities (dcm) or target capacities (sr,ccm): capacity margin 5% 3 representative demand + renewable output seasons Winter (26%) +Schoulder(26%) +Summer (48%): Peak load 203 GW + extreme event Winter (0.3%) with a sixth of average wind availability

6 4 Scenarios and Reference Demand elasticity scenarios Extreme eventalwaysε=-0,1;else a)ε=-0,5; b) ε =- -0,1 International transmission scenarios 1) Energy roadmap capacities; 2) no transmission Reference Energy only market, a1) basic scenario used in the following

7 5 Results Energy Only Market Investments by 2020 only in Gas retrofit(1.3 GW) Prices by2020 in /MWh: De Fr Pl Winter Shoulder Summer Extreme Mean Max Mean Max Mean Max

8 6 Impact of capacity mechanisms: Investment Gas_GT GAS_Ret By2020 additional investmentneeds10 GW Retrofitand between1 and 10 GW open cycle gas turbines Lowest necessary investment under DCM 0 DCM SR CCM

9 7 Feesand Prices of DCM by2020 in Germany in /MWh SR CCM DCM Winter DCM Shoulder DCM Summer DCM cost-by-cause saves back-up capacities hour

10 8 Effects on average German producer and consumer prices 12,0 10,0 P_prod P_cons 9,5 8,0 6,0 4,0 2,0 2,5 2,5 1,3 4,3 Fee Fee 0,0-2,0-4,0-6,0 DCM SR CCM -3,6

11 9 Impact on anual firm profitsin Germany in Bio. 2 1,8 1,6 1,4 1,2 1 0,8 0,6 0,4 0,2 0 DCM SR CCM De_Vattenfall De_RWE De_Eon De_EnBW De_Dummy

12 10 Welfare effects in Germany, France and Poland in Bio. per year 0,0-0,5-1,0-1,5-2,0-2,5-3,0-3,5 DCM SR CCM -0,1-0,2-0,3-0,6-0,7-1,2-3,3 De Fr Pl All instrument with welfare losses, since reduced black-outs are not modeled Best instrument DCM: Instrument ranking robust: across countries + across scenarios not shown (No transmission + inelastic demand)

13 11 Conclusion Instrument ranking: DCM>SR>CCM Limitations and future research: Regional problems in Germany not addressed Black-out probabilities needed for complete assessment EOM not ruled out Market power under a decentralized market approach

14 Vielen Dank für Ihre Aufmerksamkeit. DIW Berlin Deutsches Institut für Wirtschaftsforschung e.v. Mohrenstraße 58, Berlin Redaktion