Abstract Market Designs: A Survey and Analysis of Methods to Ensure Peak Capacity

The production and consumption of electricity must be in balance in order to maintain the frequency in an electrical grid. During peak loads this may be troublesome to achieve due to lack of adequate production capabilities. Competitive electricity markets with price caps have a problem- insufficient revenues for peak production units which lead to mothballing or decommissioning of power plants. Inadequate production capability is solved through design of the electricity markets which renders in incentives to operate these power plants. This report analyzes the most common market designs with the Nordic countries of Finland, Norway, and Sweden in mind. The Nordic situation is used as the background for an evaluation of the impact of the chosen designs. The question of finding a market solution of the peak load problem is yet a prerequisite. The conclusions are that a clear definition of what a market solution is, is needed in order to determine which design to prefer. The view on what to address as the problem makes a difference- treating the symptoms or the root causes leads to usage of different market designs as solutions. The Nordic countries may be better off by waiting to see the effects of the full penetration of the Automatic Meter Reading systems, which may reduce the peak loads by increasing the demand responsiveness. The current market designs in the Nordic countries may also be sufficient while developing the market's demand response, and thereby not call for implementations of other market designs