The variation in capacity remunerations requirements in European electricity markets

Hickey, C, Bunn, D W, Deane, P, McInerney, C and O Gallachoir, B (2020) The variation in capacity remunerations requirements in European electricity markets. Energy Journal, 42 (2). ISSN 0195-6574 (In Press) OPEN ACCESS

Abstract

This paper provides the first EU wide analysis of the variation in Capacity Remuneration Requirements throughout Europe which aim to resolve the “missing money” problems in various member states. The findings of this analysis point to an asymmetric investment case for gas-fired peaking power plants throughout the EU. Under the assumptions of the European Commission Reference Scenario, pan-European power optimisation and investment models are specified for 2030. The results show that future investment in gas generators will depend on the availability of capacity payments. Capacity remuneration mechanisms can provide this “missing money”, but we show that capacity remuneration requirements vary considerably across countries. We consider and model the impacts of country specific climate policy targets, sovereign risk, capital allowances, corporate taxes and future gas network tariffs on investor returns and therefore remuneration requirements. In the context of harmonised energy trading, this raises questions of how generation adequacy should be achieved, particularly in the context of higher penetrations of renewables.

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Item Type: Article
Subject Areas: Management Science and Operations
Additional Information:

© 2021 International Association for Energy Economics

Date Deposited: 08 Feb 2021 10:07
Date of first compliant deposit: 05 Feb 2021
Subjects: E > Europe
C > Capacity management
I > Investment and growth
E > Electricity supply industry
Last Modified: 16 Feb 2021 12:10
URI: https://lbsresearch.london.edu/id/eprint/1375
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