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Department of Economics, University of Bergen Working Papers in Economics, Department of Economics, University of Bergen

No 01/06:
Provision of reserve capacity on the Nordic electricity market: Principles and practises

Eirik Schrøder Amundsen () and Lars Bergmann ()

Abstract: System reliability is a key aspect of electricity supply, and the ability to maintain system reliability thus is an important aspect of a liberalised electricity market. But system reliability can be ensured only if there is sufficient reserve capacity at all times. In a liberalised electricity market the provision of reserve capacity is a matter of incentives. The Nordic electricity market, comprising of the integrated Danish, Finnish, Norwegian and Swedish electricity markets, has worked well from a system reliability point of view. A key factor behind this favourable outcome is that the incentives for keeping sufficient reserve capacity have been strong enough. The reason for this is an adequate institutional design point. More precisely the set of markets that is commonly called “the electricity market” includes both regulation and capacity markets, and rules and regulations are such that these markets are wellfunctioning.

Keywords: Nordic electricity market; reserve capacity; peak capacity; capacity market.; (follow links to similar papers)

JEL-Codes: L10; L11; L51; L94; (follow links to similar papers)

31 pages, January 31, 2006

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