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Based upon probabilistic reliability metrics, we develop an optimization model to determine the efficient amount and location of firm generation capacity to achieve reliability targets in multi-regional electricity systems. A particular focus lies on the representation and contribution of transmission capacities as well as variable renewable resources. Calibrating our model with a comprehensive dataset for Europe, we find that there are substantial benefits from regional cooperation. The amount of firm generation capacity to meet a perfectly reliably system could be reduced by 36.2 GW (i.e., 6.4 %) compared to an isolated regional approach, which translates to savings of 14.5 bn Euro. Interconnectors contribute in both directions, with capacity values up to their technical maximum of close to 200 %, while wind power contributions are in the range of 3.8-29.5 %. Furthermore, we find that specific reliability targets heavily impact the efficient amount and distribution of reliable capacity as well as the contribution of individual technologies.

Analyzing commodity market dynamics, we observe that price volatility increases with reduced contract duration. In this paper, we derive a theoretical model depicting the price formation in two markets with altering product granularity. Supplemented by empirical evidence from German electricity markets for hourly and quarter-hourly products, we find that the high price volatility is triggered by restricted participation of suppliers in the market for quarter-hourly products as well as by sub-hourly variations of renewable supply and demand. Welfare implications reveal efficiency losses of EUR 96 million in 2015 that may be reduced if markets are coupled.

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