We model the long‐term dynamic of two interdependent markets.
We examine both the short and long terms effect of heterogeneous regulatory design: energy‐only market, price‐capped market without capacity mechanisms and price‐capped markets with forward capacity contracts obligation.
Differences in market designs affect both price and reliability of supply in the two markets.
Lack of harmonization between local markets in policies to ensure capacity adequacy may lead to undesirable side effects.
Free‐riding may occur where capacity adequacy policies are adopted in one market but not the other.
