Incentivos para una oferta adecuada en los mercados de electricidad: una aplicacion al sector electrico mexicano.
Economia Mexicana › Vol. 18 Nbr. 2, July 2009
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Incentivos para una oferta adecuada en los mercados de electricidad: una aplicacion al sector electrico mexicano.
Incentives for Supply Adequacy in Electricity Markets: An application to the mexican power sector.
Introduction Recent electricity power crises around the world have dramatically showed how crucial reliable electricity supply is.' Generation reserves had declined in many markets since liberalization by the end of last decade (IEA, 2002). Examples are Australia, where reserves dropped significantly after the reform (starting from a significant initial overcapacity); Norway, where there was a 2 per cent decrease in 1991-2000; and California, with a 7.5 per cent decrease during 1990-1998. Changes in reserve margins have frequently taken place from starting large reserves, so that current reserves generally remain above 16 per cent. Additionally, various electricity crises have arisen in systems that heavily depended on hydropower (e.g. Brazil). However, there is concern on whether reformed electricity markets will be able to attract sufficient investment in generation capacity, due to the characteristics of electricity markets, such as : (2) * The inelasticity of short-term electricity demand and supply functions, which implies that the long-run supply-demand balance cannot always be achieved through a market clearing price. (3) * The favourable environment for strategic behaviour by generators under tight market situations. * The lack of long-term (beyond one or two years) forward electricity markets. * The lack of incentives for final consumers to engage in long-run contracts, since they are usually isolated from spot prices by regulated tariffs (see Bouttes, 2004; Vdzquez, Rivier and Perez Arriaga, 2002). (4) Our paper studies the electricity market long run design problem of ensuring enough generation capacity to meet present and future demand. Reform processes worldwide have shown that it is difficult that the market alone provides incentives to attract enough investment in capacity reserves, due to market and institutional failures. We first study several measures that have been proposed internationally to cope with this problem, including strategic reserves, capacity payments, capacity requirements, and call options. The analytical and practical strengths and weaknesses of each approach are discussed. We then construct a model to analyze the structure of incentives for the expansion of electricity supply in the spot market, and capacity in the long run electricity reserve market. Through a game-theory model, we analyze price convergence in three markets: the peak spot market, the non-peak spot market, and the long-run capacity reserve market. We finally carry out a simulation for Mexican power generation, which has been subject to a modest reform process and is characterized by large efficiency differences among plants. First, we construct a benchmark using the merit order model for dispatch, given the generation costs for each technology actually employed in Mexico. Then we compare it with the real cost of electricity generation, as reported by Comision Federal de Electricidad (CFE). I. Resource Adequacy: Several Measures Various measures have been proposed to ensure generation resource adequacy. They can be analyzed in terms of their degree of centralization and the amount and price of capacity (Knops, 2002; De Vries, 2004; Oren, 2000, 2003). In this section, we analyze both the theoretical fundamentals as well as the international experience on these measures. I.1. Centralized Resource Adequacy There are two extremes regarding resource adequacy and investment in capacity reserves. One extreme is a fully centralized solution, where a vertically integrated utility manages congestion and ancillary services using its own generation resources. This is the well known "wheeling" model used in North America, in regions that have not gone into a liberalized structure and ...See the full content of this document
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