01 Mar 2004

The Question of Generation Adequacy in Liberalised Electricity Markets

L.J. de Vries / R.J. Hakvoort

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The INDES project and related working papers focus on market-compatible, cost-effective security of supply responses by the EU. Security of supply is understood as insurance against risks, in which responsibility is shared between the EU, member states, energy companies and customers. Thus security of supply is seen as an economic risk-management strategy. Critical to such an approach is first the minimisation of the insurance ‘premium’ to achieve the degree of security that is politically called for. Second, there is a need to identify the best systemic actor able to ‘hedge’ the risk. This can be governments, companies, consumers or in some cases, the market itself subsequent to careful design. Based on these premises, INDES research has emphasised two areas: i) costs of energy supply disruptions and ii) costs of potential policy responses. Towards this end, robust methodologies to assess costs and a sound empirical basis for cost data have been used in the working paper series as the precondition for informed policy choices reflecting both effectiveness and cost-efficiency.