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The Regulatory Assistance Project
rue de la Science 23 B - 1040 Brussels Belgium
Phone: +32 2-894-9300web: www.raponline.org
“Energy-only markets” or “a given form of capacity mechanism”?
Asking the wrong question
Michael HoganSenior Advisor28 September
2015
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“The market is swimming in supply…the difficulty regulators and grid operators need to address is not finding flexibility but creating a structure so that flexibility value is revealed.”Peter Styles, Board Member of European Federation
of Energy Traders (24 September 2015)
Why are market prices so low?________________________________________________
3
Source: Brattle Group, “ERCOT Investment Incentives and Resource Adequacy”
Price formation in markets________________________________________________
4
Which mkt design is best for Europe?
________________________________________________
Relevant ConsiderationsRestores “missing money”
Promotes “adequate” investmentEfficient stakeholder risk/rewardMonetizes full value of flexibilityPromotes demand participationFacilitates low-carbon transition
Facilitates progress toward the IEMEnables market power mitigation
Promotes innovationPromotes new entry
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New investment in ERCOT market________________________________________________
6
New investment in Australian NEM mkt________________________________________________
7
0 0.5 1 1.5 2 2.5 3 3.5 4
ratio of actual to target reserve margins
North America
Australia
SWIS
NEM
ISO-NE
PJM
NYISO
ERCOT
0 1 2 3 4 5 6 7
avg annual new-build as % of 2014 peak
Investment (& over-investment) experience________________________________________________
Strength of FCM
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Reserve shortage pricing mechanism
________________________________________________
Within 30 minutes
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Reserve shortage pricing mechanism
________________________________________________
10
GB cash-out price reform________________________________________________
Source: Baringa/Redpoint
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Which CRM design is best for Europe?
________________________________________________
€/MWh Relevant Considerations €/MWRestores “missing money”
Promotes “adequate” investmentEfficient stakeholder risk/rewardMonetizes full value of flexibilityPromotes demand participationFacilitates low-carbon transition
Facilitates progress toward the IEMEnables market power mitigation
Promotes innovationPromotes new entry
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About RAP
The Regulatory Assistance Project (RAP) is a global, non-profit team of experts that focuses on the long-term economic and environmental sustainability of the power and natural gas sectors. RAP has deep expertise in regulatory and market policies that:
Promote economic efficiency Protect the environment Ensure system reliability Allocate system benefits fairly among all consumers
Learn more about RAP at www.raponline.org
Michael Hogan – [email protected]