Power to the people: Creating markets for security of supply

Abstract

One of the root causes behind many of the distortions in today’s electricity markets is that short term security of supply is a good without a market as curtailments are typically not priced based on consumer preferences. Consumer choice of reliability levels is thus replaced with administrative reliability targets and adequate investment needs to be guaranteed through capacity mechanisms and emergency plans, distorting dispatch, investment and innovation incentives instead of relying on market signals. As an alternative approach, this paper proposes to enhance electricity markets by including curtailment bids from all end consumers in the energy market and offer grid tariffs for different reliability levels.