Security of Supply in European Electricity Markets—Determinants of Investment Decisions and the European Energy Union

Abstract

Abstract:The European Union and its Member States are seeking to decarbonize their energy systems, including the electricity sector and, at the same time, pursue market integration. However, renewable energy (RE) deployment and the liberalization of the energy-only market have raised concerns at the national level about the security of electricity supplies in the future. Some actors consider the lack of sufficient investments in generation capacities a threat to supply security. As a consequence, it was proposed that capacity markets solve these problems. The underlying assumption is that the market design is the only determining factor for investments in security of supply options. In this article, we question this narrow view and identify further determinants of the investment decisions of electricity market participants. Based on the insights of institutional sociology and economics, we understand the market to be a social institution that structures the behavioural expectations of market participants. Derived from the theoretical conceptualization and based on qualitative literature review and own work, we find four determinants for investment behaviour beyond the formal market design: Material opportunities, strategic actor behavior and identity, focusing events and discursive expectations about the future. With this perspective, we discuss the introduction of a European Energy Union as a possible tool that might have a great impact on the more informal determinants such as expectations about the future and the construction of a European energy narrative. OPEN ACCESSEnergies 2015, 8 5199

Assessing Energy Security in a Low-Carbon Context: The Case of Electricity in the UK

“…There is a lack of detailed information in the pathways about future market design. Besides this, evidence from the literature shows that market design is just one determinant of investor behaviour, with an array of other socio-economic and behavioural factors also having an influence (Ellenbeck et al 2015). This being the case, it is not really possible to assess the level of investment flows in the pathways, although this issue will be discussed in more detail in section 7.3.…”

“…A majority of respondents noted this as one of the most critical aspects of ensuring energy security on all timescales, and there were concerns that the UK (and in fact most of the EU) is currently at risk of a lack of investment in energy infrastructure. This issue is raised in Blyth et al (2014); Deane et al (2015); Ellenbeck et al (2015); Mitchell et al (2014) and Usher and Strachan (2012). There was general consensus that in order for this investment to happen, investors must have confidence that their investments will pay off.…”

“…Market and investment structures in the UK are currently under pressure, because the main utilities are suffering from a combination of high corporate debt, low wholesale prices, and reductions in electricity demand (Blyth et al 2014;Deane et al 2015;Mitchell et al 2014). In fact, most countries in the EU are facing debates about whether they are managing to attract enough investment to maintain security of supply (Ellenbeck et al 2015), although proposed Capacity…”

“…For instance, nuclear power is low-carbon and uranium stocks are relatively plentiful (World Nuclear Association 2014). However, nuclear power is also associated with risks: for example, despite government support in the UK, new nuclear power has been subject to delays and uncertainty caused by the challenges of securing investment for projects with high capital cost in a liberalised energy market (Blyth et al 2014;Ellenbeck et al 2015;Mitchell et al 2014). Another option for fuel switching is biomass, a term which applies to a diverse range of fuel sources including wood pellets, agricultural residues, energy crops, and biogenic waste from landfill, sewage and farming.…”

Energy Policy and Climate Change: A Multidisciplinary Approach to a Global Problem

“…Ellenbeck et al [12] question the widespread reliance on the sole market design for secure electricity supplies through the full development of capacity markets at national or regional level. Using an interdisciplinary approach based on economic analysis and sociological insight, they theorize that the market as a social institution is capable of shaping the investment behavior of its participants.…”