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Journal Article / Energy

Cross-border effects of capacity mechanisms in interconnected power systems

Author(s): BHAGWAT Pradyumna, CHAPPINA Emile J.L., RICHSTEINA Jörn C.

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ABSTRACT

The cross-border effects of a capacity market and a strategic reserve in interconnected electricity markets are modeled using an agent-based modeling methodology. Both capacity mechanisms improve the security of supply and reduce consumer costs. Our results indicate that interconnections do not affect the effectiveness of a capacity market, while a strategic reserve is affected negatively. The neighboring zone may free ride on the security of supply provided by the zone implementing a capacity mechanism. However, a capacity market causes crowding out of generators in the energy-only zone. A strategic reserve implemented by this region could aid in mitigating this risk.