Electricity market design: Policy coordination and zonal configurations
Swiss electricity markets are subject to several large-scale changes. Market power is to be reduced with the second phase of market liberalization and renewables are intended to replace nuclear power. In the course of these changes, the current market design will likely have to be adjusted necessitating an adaptation of existing or an introduction of new policy measures and regulatory interventions. In this context, this project explores how political interventions in electricity markets interact and if they need to be coordinated.
For this analysis, we develop a conceptual electricity market model including supply and demand representing an imperfectly liberalized market with consumers that are hesitant to switch suppliers. Our results show that demand- and supply-side problems are almost perfectly decoupled. Hence, policy should aim for coordinating interventions on the demand side (such as measures to incentivize supplier switching and the structure of grid tariffs) and, separately, coordinating interventions on the supply side (such as feed-in premiums or tariffs and capacity markets). Focusing on supply side policies, this project further investigates the role of potential policy approaches to support investments (capacity market, feed-in premiums, and a quota mechanism) and the Swiss network structure on investment incentives. Our results show that a zonal reconfiguration of the Swiss electricity market into a Northern and Southern zone does only require coordination with policy targets if such a split is also linked to zonal targets for generation capacities. However, the policy design needs to take into account the potential for strategic company behavior to avoid exploitation and suboptimal investments.
2015 - 2018