An Institutional Frame to Compare Alternative Market Designs in EU Electricity Balancing

The so-called “electricity wholesale market” is, in fact, a sequence of several markets. The chain is closed with a provision for “balancing,” in which energy from all wholesale markets is balanced under the authority of the Transmission Grid Manager (TSO in Europe, ISO in the United States). In selecting the market design, engineers in the European Union have traditionally preferred the technical role of balancing mechanisms as “security mechanisms.” They favour using penalties to restrict the use of balancing energy by market actors. While our paper in no way disputes the importance of grid security, nor the competency of engineers to elaborate the technical rules, we wish to attract attention to the real economic consequences of alternative balancing designs. We propose a numerical simulation in the framework of a two-stage equilibrium model. This simulation allows us to compare the economic properties of designs currently existing within the European Union and to measure their fallout. It reveals that balancing designs, which are typically presented as simple variants on technical security, are in actuality alternative institutional frameworks having at least four potential economic consequences: a distortion of the forward price; an asymmetric shift in the participants’ profits; an increase in the System Operator’s revenues; and inefficiencies.Electricity Forward Market, Balancing Mechanism, Risk Aversion, Penalty, Institutional Frame, Market Design.

INSTITUTIONAL AND TECHNOLOGICAL CO-EVOLUTION IN THE FRENCH ELECTRONUCLEAR INDUSTRY

This paper discusses performance in the French nuclear industry, which is, especially in comparative perspective, a significant success. It emphasizes the interaction and co-evolution of institutions, organizational patterns and the technological regime in the industry. As deregulation in the electricity industry is spreading across the industrialized countries, the success of the French nuclear sector limits the scope for liberalization in France - a situation that is likely to keep France on this technological trajectory for power generation. The paper concludes by assessing the sustainability of the system thus generated.