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

Coller School of Management

Research output: Contribution to 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
State	Published - 1 Aug 2022

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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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.",

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

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