A Reliability-Insurance Based Electricity Market: From Theory to Practice

In a previous publication in October 2018, we introduced a new electricity market design based on reliability insurance that works as an overlay over the existing energy-only electricity markets.  An insurance based market disaggregates energy and reliability and utilises consumer preference and price signal to drive capacity deployment in the power sector.  While conceptually attractive, new approaches must be integrated into existing market design frameworks without creating disruption, be supported by stakeholder groups and be implementable in the context of wider government policies in the electricity industry.  In this paper, we address implementation challenges of an insurance-based electricity market design focussing on issues such as acceptability, pricing framework, competition,  participants’ behaviour, consumer choice, complexity, consumer safeguard, coordination and communication and treatment of vulnerable consumers.  We outline  a practical approach for integration of a reliability insurance market into the existing energy only electricity markets of Australia and the UK.

By: Farhad Billimoria , Rahmat Poudineh