Insuring the penalty risk of non-delivery in the United Kingdom's capacity market

C. K. Woo; K. H. Cao; A. Tishler

doi:10.1016/j.tej.2022.107157

Insuring the penalty risk of non-delivery in the United Kingdom's capacity market

C. K. Woo, K. H. Cao^*, A. Tishler

^*Corresponding author for this work

Research output: Contribution to journal › Journal article › peer-review

Abstract

In July 2021, the United Kingdom (UK) Government considered tripling the UK grid's performance-based incentive scheme's penalty for capacity non-delivery during a shortage. This paper proposes an insurance that a generator may buy to manage its risk exposure to the scheme's penalty. It also shows how to use readily available data to calculate the insurance's per MW premium. These findings suggest that the proposed insurance deserves consideration by generators and insurance sellers.

Original language	English
Article number	107157
Journal	Electricity Journal
Volume	35
Issue number	7
DOIs	https://doi.org/10.1016/j.tej.2022.107157
Publication status	Published - Aug 2022

Scopus Subject Areas

Business and International Management
Energy (miscellaneous)
Management of Technology and Innovation

User-Defined Keywords

Capacity non-delivery
Electricity grid
Incentive scheme
Penalty risk
United Kingdom

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10.1016/j.tej.2022.107157

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title = "Insuring the penalty risk of non-delivery in the United Kingdom's capacity market",

abstract = "In July 2021, the United Kingdom (UK) Government considered tripling the UK grid's performance-based incentive scheme's penalty for capacity non-delivery during a shortage. This paper proposes an insurance that a generator may buy to manage its risk exposure to the scheme's penalty. It also shows how to use readily available data to calculate the insurance's per MW premium. These findings suggest that the proposed insurance deserves consideration by generators and insurance sellers.",

keywords = "Capacity non-delivery, Electricity grid, Incentive scheme, Penalty risk, United Kingdom",

author = "Woo, {C. K.} and Cao, {K. H.} and A. Tishler",

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year = "2022",

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language = "English",

volume = "35",

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N2 - In July 2021, the United Kingdom (UK) Government considered tripling the UK grid's performance-based incentive scheme's penalty for capacity non-delivery during a shortage. This paper proposes an insurance that a generator may buy to manage its risk exposure to the scheme's penalty. It also shows how to use readily available data to calculate the insurance's per MW premium. These findings suggest that the proposed insurance deserves consideration by generators and insurance sellers.

AB - In July 2021, the United Kingdom (UK) Government considered tripling the UK grid's performance-based incentive scheme's penalty for capacity non-delivery during a shortage. This paper proposes an insurance that a generator may buy to manage its risk exposure to the scheme's penalty. It also shows how to use readily available data to calculate the insurance's per MW premium. These findings suggest that the proposed insurance deserves consideration by generators and insurance sellers.

KW - Capacity non-delivery

KW - Electricity grid

KW - Incentive scheme

KW - Penalty risk

KW - United Kingdom

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DO - 10.1016/j.tej.2022.107157

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Insuring the penalty risk of non-delivery in the United Kingdom's capacity market

Abstract

Scopus Subject Areas

User-Defined Keywords

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