Institute for Research in Technology —
Instituto de Investigación Tecnológica
Details of the project
||Security of supply in the Dutch electricity market: the role of reliability options
||September 2003 - January 2004
||Dienst uitvoering en toezicht Energie (DTe) (Comisión Reguladora Holandesa)
||The objective of this project is the study of the feasibility of implementing a reliability options approach to the problem of security of supply in the Dutch electricity market. During the last years of the electricity liberalization process, security of supply is increasingly becoming an issue of concern. Basically, the question is to determine whether a market-type regulation will be able to provide enough generation capacity in the system or not, and under which conditions an energy-only market will be enough to ensure system requirements for new investments under reasonable reliability standards. The problem is especially critical since the consequences of under-investment for market performance are frequently dramatic -including very high prices and blackouts-, and considering that episodes with these characteristics have been appearing in the international experience more often than expected along the last years.
One of the relevant procedures to deal with this problem is the realiabilty options method, where generators sell a certain amount of financial options and, by doing so, they commit to produce whenever prices rise over a certain reference level. Option-holder firms that fail to fulfill their commitment are heavily penalized. These options are allocated through an auction where each generator submit bids expressing the amount of power he is willing to sell and the price he requires for it.
This project will study the feasibility of implementing such a guarantee of supply mechanism in the context of the market in The Netherlands. This would require a detailed analysis of the specific circumstances of the market, such as the impact of imports and exports, the role of retailers, etc. As a result, the project would provide a clear idea of the pros and cons of using this mechanism in Holland, a proposal of the possible changes to the original design that are required in this context, and a specification of the main parameters that should be considered in its application.
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