We develop an analytical model to derive the competitive market equilibrium for electricity spot and reserve markets under stochastic demand and uncertain renewable electricity generation. We then derive the welfare-optimal provision of reserves. At rst-best, cost of reserve capacity is balanced...

Integrating large quantities of supply-driven renewable electricity generation remains a political and operational challenge. One of the main obstacles in Europe to installing at least 200 GWs of power from variable renewable sources is how to deal with the insufficient network capacity and the...

It would seem that Hotelling's rule and its related models of resource extraction and electricity production as largest consumer of scarce resources are closely related. However, although fixed costs and a non-storable product are essential in characterizing electricity markets, they can hardly...

We develop an analytical model to derive the competitive market equilibrium for electricity spot and reserve markets under stochastic demand and uncertain renewable electricity generation. We then derive the welfare-optimal provision of reserves. At first-best, cost of reserve capacity is...

Optimal capacity allocation for investments in electricity generation assets can be deterministically derived by comparing technology specific long‐term and short‐term marginal costs. In an uncertain market environment, Mean‐Variance Portfolio (MVP) theory provides a consistent framework...

In principle, portfolio optimization in electricity markets can make use of the standard mean‐variance model going back to Markowitz. Yet a key restriction in most electricity markets is the limited liquidity. Therefore the standard model has to be adapted to cope with limited liquidity. An...

In this article we discuss welfare‐optimal capacity allocation of different electricity generation technologies available for serving system demand. While the classical peak load pricing theory derives the efficient portfolio structure from a deterministic marginal production cost curve...

Germany's nuclear phase out and an increasing share of fluctuating RES production amplifies the North-South congestion problem in the German electricity grid. But congestion management becomes a serious issue not only in the German but in the whole European electricity system as German wind...

This paper links Hotelling's theory, in recent literature applied to an emission‐constraint environment, with the classical capacity planning framework to describe portfolio time‐paths in electricity production. Emission targets are considered by a ceiling on the stock of pollution. We...