(In)Capacity Markets
Introduction and
background
Electricity is almost impossible or at least very pricey to store while the electricity market is unlike other markets required to be momentaneous and consecutive in achieving balance of supply and demand to maintain equilibrium. Interruption in demand and supply equilibrium endangers solidity of network and may cause disruption of consumption not only effectuating participant of market but also system as a whole. The strive for equilibrium is then exasperated by the fact that the majority of consumers do not have a metering system to observe nor act on real-time electricity prices which inhibit impact on equilibrium of supply and demand by the demand side. Since the demand side has little or no influence on the supply and demand balance the system network stability relies on the eligibility of capacity sources to meet peak demand and ensure margin reserves, a system capable of unforeseen generation loss and capacity of transmission. (Cramton & Ockenfels, 2012)
Electricity is almost impossible or at least very pricey to store while the electricity market is unlike other markets required to be momentaneous and consecutive in achieving balance of supply and demand to maintain equilibrium. Interruption in demand and supply equilibrium endangers solidity of network and may cause disruption of consumption not only effectuating participant of market but also system as a whole. The strive for equilibrium is then exasperated by the fact that the majority of consumers do not have a metering system to observe nor act on real-time electricity prices which inhibit impact on equilibrium of supply and demand by the demand side. Since the demand side has little or no influence on the supply and demand balance the system network stability relies on the eligibility of capacity sources to meet peak demand and ensure margin reserves, a system capable of unforeseen generation loss and capacity of transmission. (Cramton & Ockenfels, 2012)
Non-equilibrium
If presuming electricity markets not being subject to demand side failure and demand being responsive to prices in order to clear wholesale market, the market would then be in balance and utterly dependable. Hence, scarcely supply would lead to increase of prices that would continue until enough premeditated load exists in order to absorb scarcity. Demand would then never sustain non-voluntary rationing. However electricity markets do not apply to the ideal of market clearing insurance due mainly to the problem of consumers not being able to respond to real-time prices. The lack of equipment such as real-time meters hinders consumer to see real-time prices and to market interaction resulting in a negative flexibility of demand. A dear storage of electricity combined with an inelastic supply-side capacity becomes scarce resulting in a possible rolling black-out in the form of non-price rationing demand.
If presuming electricity markets not being subject to demand side failure and demand being responsive to prices in order to clear wholesale market, the market would then be in balance and utterly dependable. Hence, scarcely supply would lead to increase of prices that would continue until enough premeditated load exists in order to absorb scarcity. Demand would then never sustain non-voluntary rationing. However electricity markets do not apply to the ideal of market clearing insurance due mainly to the problem of consumers not being able to respond to real-time prices. The lack of equipment such as real-time meters hinders consumer to see real-time prices and to market interaction resulting in a negative flexibility of demand. A dear storage of electricity combined with an inelastic supply-side capacity becomes scarce resulting in a possible rolling black-out in the form of non-price rationing demand.
Reference
Cramton, P. &
Ockenfels, A, 2012, Economics and Design
of Capacity Markets for the Power Sector. Zeitschrift für
Energiewirtschaft, June 2012, Volume 36, Issue 2, pp 113-134
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