Long-term dynamics of investment decisions in electricity markets with variable renewables development and adequacy objectives.

Summary Liberalized electricity markets are assumed to provide long-term coordination of investments to ensure security of supply, sustainability and competitiveness. In the energy-only reference model, price formation by aligning the variable cost of marginal equipment in successive hourly markets provides a price signal to investors. However, in practice, this model is questioned as to its ability to trigger investments in low-carbon technologies and in particular renewable energies (RE) and as to its ability to guarantee security of supply. This thesis first seeks to characterize these two market failures and then looks at different solutions to address each of them. The results show that the replacement of non-market support mechanisms by market investments with the help of a carbon price appears to be a solution to trigger the development of RE, provided that there is a strong political commitment to a high carbon price. On the other hand, it also appears that the energy-only market with capped prices does not succeed in ensuring capacity adequacy. The addition of a capacity market or the removal of the price cap would allow for an improvement in the number of hours of load shedding and collective welfare. Moreover, the capacity market appears to be the best choice for the regulator among the market architectures considered.