Efficient energy only markets

This paper analyzes the impact of scarcity prices and demand response capacity on the resource adequacy in the German energy-only market with a probabilistic framework. By considering the uncertainty both in generation and demand side, we implement a Monte Carlo analysis to examine all potential economic and reliability outcomes. A system dynamic model is proposed to evaluate the hourly and annual production costs, prices, frequency of scarcity events and profitability of new installed capacities. Results show that increasing the price cap to approach to the Value of Lost Load (VOLL) leads to shorter period of high prices and shorter period of high Loss of Load Probability (LOLP) and less frequency of load shedding. Also, higher demand response capacity reduces the load shedding frequency and mitigates the resource adequacy problem in the energy-only market.