Capacity Choices in Liberalised Electricity Markets Articles uri icon

publication date

  • July 2009

start page

  • 2574

end page

  • 2581


  • 7


  • 37

International Standard Serial Number (ISSN)

  • 0301-4215

Electronic International Standard Serial Number (EISSN)

  • 1873-6777


  • This paper addresses the issue of investment in electricity generation in the context of a liberalised market. We use the main results derived from a theoretical model where firms invest strategically to simulate the Spanish electricity system with real-world data. Our results indicate that, under reasonable parameter constellations regarding the number of agents, the level of capacity resulting from private decisions falls well short of the social optimum. Last, we show that two regulatory mechanisms that have been used to generate additional incentives for private agents to install capacity (capacity payment and price-adder) are ineffective and/or prohibitively costly.


  • electricity; capacity; long-run investment