Security of supply – a task for the market?

Denmark | July 2006 - May 2010

The goal of the project was to analyse the technical, economic and liability aspects of increasingly basing security of supply on market forces.

Maintaining a secure energy supply is a priority in modern society. In particular, energy in the form of electricity is crucial for the functioning of society, and even short interruptions can have significant consequences for consumers and society. It is therefore crucial to examine how the optimal level of energy security can be found, and how this level should be provided – e.g. determined by the market or by government regulation.

Security of supply can be obtained through the market in a number of steps:

  • Introduction of visibility and cost reduction
  • Establishment of a level of energy security based on consumer preferences
  • Introduction of energy security that varies between consumers groups, in duration and timing
  • Definition of individual levels of energy security

Considerable savings

It was confirmed through the model analyses that it is possible to achieve savings by creating a market for capacity. In the model, these savings amount to DKK 15-20 billion annually for Germany and the Nordic countries (DKK 0.01 per kWh). The savings are primarily achieved by no longer keeping capacity in reserve that is not cost-effective. Instead, the market generates a direct incentive to consumers or their electricity companies, to invest in technology that gives more flexibility and dynamics to the system. Furthermore, there is less probability of keeping a too high level of energy security, from a socio-economic point of view, due to a conservative planning tradition.

The project was carried out by COWI, Risø, the Danish Energy Association, RAM-løse edb and Ea Energy Analyses and was supported by the Energy Research Programme, ERP, under the Danish Energy Agency.