THE SYSTEM ADEQUACY PROBLEM: LESSONS LEAMED FROM THE AMERICAN CONTINENT (En: Capacity Mechanisms in the EU Energy Market: Law, Policy, and Economics. Oxford: Oxford University Press, 2015)

The main reason behind liberalizing the power generation activity was to promote economic efficiency at all levels, in the short term (at an operational level), but specially in the long term (at capacity expansion level).

This belief was based on fundamental economic theory, which asserts that the short-term market marginal price is all that is needed to remunerate the generators to lead the system expansion towards an optimally adapted generation mix. This market mechanism to ru1e short-term operation was also seen as the required level playing field to attratct new investors.

However, from the outset, ever since Chile restructured its power sector with its pioneering reform in 1982, the ability of short-term marginal prices to provide sufficient incentives for investment in generation was called into question in a number of countries in which liberalization was implemented.

1. Introduction

2. Design elements

3. Target market

4. Lag period (or lead time)

5. Contract duration

6. Defining the requirements associated with the 'reliability product'

7. Indexation and warranties

8. Summary and high-level recommendations