Restructuring Electricity Markets when Demand is Uncertain: Effects on Capacity Investments, Prices and Welfare

Anette Boom, Stefan Buehler

Research output: Working paperResearch

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Abstract

We examine the effects of reorganizing electricity markets on capacity investments, retail prices and welfare when demand is uncertain. We study the following market configurations: (i) integrated monopoly, (ii) integrated duopoly with wholesale trade, and (iii) separated duopoly with wholesale trade. Assuming that wholesale prices can react to changes in retail prices (but not vice versa), we find that generators install sufficient capacity to serve retail demand in each market configuration, thus avoiding blackouts. Furthermore, aggregate capacity levels and retail prices are such that the separated (integrated) duopoly with wholesale trade performs best (worst) in terms of welfare.
Original languageEnglish
Place of PublicationFrederiksberg
PublisherCopenhagen Business School, CBS
Number of pages29
Publication statusPublished - Nov 2006
SeriesWorking Paper / Department of Economics. Copenhagen Business School
Number11-2006

Keywords

  • Electricity
  • Investments
  • Generating capacities
  • Vertical integration
  • Monopoly and competition

Cite this

Boom, A., & Buehler, S. (2006). Restructuring Electricity Markets when Demand is Uncertain: Effects on Capacity Investments, Prices and Welfare. Copenhagen Business School, CBS. Working Paper / Department of Economics. Copenhagen Business School, No. 11-2006