3.1 Security of Supply
Security of Supply
To bring about the energy transition, we need a complete transformation of the energy system, including massive investments in energy generation. However, attracting investment in energy generation is not as simple as it sounds. How do generators recover their investment costs when they only bid at marginal costs? What problems arise in the current system?
More electricity markets jargon
Before we start move onto the assignments for this unit, it’s important that we tackle some more terminology related to generation investment and security of supply. Understanding these terms will help you answer the assignments and follow the videos later on.
An “energy only market” is a wholesale electricity market where generators obtain revenues from sale of electricity, balancing power and ancillary services.
In such a market, supply and demand determine the profitability of electricity generation and future investment incentives. An energy-only market only compensates power that has been produced.
As opposed to the energy-only market, a capacity market compensates the readiness, or capacity, for power production. This ensures security of electricity supply by providing a payment for reliable sources of capacity. More details will be given on this later this week.
Price elasticity determines how much the demand changes in response to a variation in price.