Indivisibilities in Investment and the Role of a Capacity Market

Stevens, Nicolas; Smeers, Yves; Papavasiliou, Anthony

dc.contributor.author	Stevens, Nicolas
dc.contributor.author	Smeers, Yves
dc.contributor.author	Papavasiliou, Anthony
dc.date.accessioned	2024-04-24T06:55:55Z
dc.date.available	2024-04-24T06:55:55Z
dc.identifier.uri	https://dspace.lib.ntua.gr/xmlui/handle/123456789/59262
dc.identifier.uri	http://dx.doi.org/10.26240/heal.ntua.26958
dc.rights	Αναφορά Δημιουργού 3.0 Ελλάδα	*
dc.rights.uri	http://creativecommons.org/licenses/by/3.0/gr/	*
dc.subject	Pricing indivisibilities	en
dc.subject	Investment problem	en
dc.subject	Capacity market	en
dc.subject	Convex hull pricing	en
dc.title	Indivisibilities in Investment and the Role of a Capacity Market	en
heal.type	journalArticle
heal.classification	Regulatory economics	en
heal.access	free
heal.recordProvider	ntua	el
heal.publicationDate	2024
heal.bibliographicCitation	Stevens, N., Smeers, Y., & Papavasiliou, A. (2024). Indivisibilities in investment and the role of a capacity market. Journal of Regulatory Economics, 1-35.	en
heal.abstract	The topic of pricing non-convexities in power markets has been explored vividly in the literature and among practitioners for the past twenty years. The debate has been focused on indivisibilities in short-term auctions, the computational tractability of some pricing proposals, and the economic analysis of their behavior. In this paper, we analyse a source of non-convexities that is not discussed as broadly: the indivisibilities in investment decisions. The absence of equilibrium that we are primarily concerned about is the long-term equilibrium. We derive a capacity expansion model with indivisibilities and we highlight the issues arising from it. We discuss its relevance and address one particular argument for neglecting indivisibilities in investment, namely market size. We investigate to what extent a capacity market that clears discrete offers can mitigate the lumpiness problem. We particularly introduce the novel concept of convex hull pricing for capacity auctions. We illustrate the main findings with a numerical experiment conducted on the capacity expansion model used by ENTSO-E to assess the adequacy of the entire European system.	en
heal.publisher	Springer	en
heal.journalName	Journal of regulatory economics	en
heal.journalType	peer-reviewed
heal.fullTextAvailability	false