The risk of shortages in generation

The risk of shortages in generation can be reduced by increasing the investment in
generation and the operating cost of keeping installed capacity available. However,
overinvestment and high operating costs would be ultimately reflected in the bill paid
by the customer. On the other hand, underinvestment and tight generation margins
would lead to a low reliability offered to customers. In general, economic efficiency
requires that the benefits of improvements in reliability be weighed against the costs of
providing additional reliability. Accordingly, the main shortcoming of using quantityconstrained
methods to estimate reserve requirements is that economic criteria are not
explicitly included in the decision-making process.