Provision of operating reserve capacity: Principles and practices on the Nordic Electricity Market

System reliability is a key aspect of electricity supply, and the ability to maintain system reliability this is an important aspect of a liberalised electricity market. But system reliability can be ensured only if there is sufficient operating reserve capacity at all times. In a liberalised electricity market the provision of operating reserve capacity is a matter of incentives that should be formulated on basic principles of economic behaviour. The Nordic electricity market, comprising the integrated Danish, Finnish, Norwegian, and Swedish electricity markets, has worked well from a system reliability point of view. A key factor behind this favourable outcome is that the incentives for keeping sufficient operating reserve capacity have been strong enough. The reason for this is an adequate institutional design. More precisely the set of markets that is commonly called “the electricity market” includes both regulation and capacity markets, and rules and regulations are such that these markets are well-functioning.