Capacity to spare? A cost-benefit approach to optimal spare capacity in electricity production

The outcomes of this study suggest that the electricity market will not generate sufficient capacity to reach the social optimum. The optimum may be reached by contracting an additional 450 to 1,220 MW of spare capacity. The bandwidth reflects uncertainty about the expected strenght of competition in the market. At this level of spare capacity, 9,000 to 16,000 MWh per year will remain unserved. This is two to three times the current amount, or 0.02 percent of annual demand. It is possible to complement spare capacity contracts with other instruments that guarantee security of supply, such as extensions of import capacity.