Almost ten years after the liberalization of the Spanish electric system, its wholesale market design remains basically unchanged, notes NERA Director Óscar Arnedillo in this article from Revista de Economía Industrial. Mr. Arnedillo examines whether the current design is still adequate, and considers various alternative models, including marginal vs. pay-as-bid pricing, physical vs. financial contracts, and capacity payments vs. capacity markets vs. energy-only. Mr. Arnedillo argues that, although the current model is not an absolute optimum, it is suited to current conditions in Spain. In addition, he stresses that only some improvements, such as the reform of the capacity guarantee payment, can be undertaken immediately. Other desirable changes will only be possible as the price in demand bids are allowed to set the market price; the price cap in the day-ahead market is increased to a level consistent with the value of lost load; transmission constraints are eliminated; full-service regulated tariffs are eliminated; and distribution companies cover all of the supply of last resort needs in forward contracts acquired through a competitive process.

This article is only available in Spanish.