Work Package 3 (2015)
Swiss electricity markets are subject to several large-scale changes, linked to the second phase of market liberalization and the intention to replace nuclear power with renewables. Thus, the current market design will likely have to be adjusted. In this context, this project explores how political interventions in electricity markets interact and if they need to be coordinated. Three researchers developed a conceptual electricity market model including supply and demand representing imperfect market liberalization.
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 market liberalization and grid tariffs) and, separately, coordinating interventions on the supply side (such as feed-in premiums or tariffs and capacity markets). Furthermore, results emphasize that promoting renewables will likely require some support for controllable energy sources in order to reduce social cost and reach higher levels of security of supply.
Focusing on supply side policies, this project further investigates the role of the Swiss network structure on investment incentives. 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.