Risky Power: Choice of Technology, Security of Supply and Market Power in Power Markets (Risky power)

Abstract:

Blackouts are generally perceived to constitute an important risk to the workings of modern societies. To counter this, societies need to secure the availability of generation capacity. The way this is done has been substantially altered as power markets have been liberalized, partly privatized and re-regulated. Increased reliance on renewable energy, use of market-based prices, and decentralized commercially-based decisions on investment in generation capacities have added new stochastic elements to electricity systems. This project explores the interaction between risky supply, stochastic demand and the organization of power markets and how these combine to determine the risk to supply security and adequacy - the risk of a blackout. The first aim of the project is to analyse the optimal mix of technologies for power generation when costs and benefits related to the security of supply are taken into account. The second aim is to analyse the (short run) effects of market power on the choice of generation technology and to correctly determine the degree of market power when demand and some supply are random. The third aim is to assess the importance of market structure and conduct for investment in new capacity. In particular, we wish to assess the effect of different vertical structures of generating firms.