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Influence of non-harmonized capacity mechanisms in an interconnected power system on generation adequacy

Insufficient incentives from the market lead to threats to generation adequacy. In order to create more steady investment signals, capacity mechanisms (CMs) are discussed in many European countries. CMs are discussed to complement energy-based market designs and ensure long-term generation adequacy. The introduction of a CM has an impact, both in the implementing but also in interconnected neighbouring countries. Hereby, the participation of non-domestic capacity at the CM through interconnection to enhance generation adequacy is often only limited or not at all possible. Current discussion is mostly based on qualitative studies. The possible joint impacts are discussed applying economic theory and transferred experience from world-wide implementations. This paper introduces an equilibrium model that allows for quantitative studies directly aiming on the possible interaction on interconnected countries with no, different or equal market designs including CMs. Changing market settings and increasing interconnection capacities can be researched to underpin the qualitative discussion. The cross-border effects are studied that arise if harmonization of CM or cross-border participation are neglected. A case study simulates two interconnected countries in a symmetrical set up to trace down the changes in the results to changes of market design and interconnection capacity. Results show that the change of market design in neighbouring countries has a strong impact on domestic generation adequacy. Increased interconnection capacity can have counter-intuitive effects on the overall generation adequacy.