Restructuring the Electricity Industry

Anette Boom, Stefan Buehler

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Abstract

We study the role of vertical structure in determining generating capacities and retail prices in the electricity industry. Allowing for uncertain demand, we compare three market configurations: (i) integrated monopoly, (ii) integrated duopoly with wholesale trade, and (iii) separated duopoly with wholesale trade. We find that equilibrium capacities and retail prices are such that welfare is highest (lowest) under separated (integrated) duopoly. The driving force behind this result is the risk of rent extraction faced by competing integrated generators on the wholesale market. Our analysis suggests that vertical structure plays an important role in determining generating capacities and retail prices.
Original languageEnglish
Place of PublicationFrederiksberg
PublisherCopenhagen Business School, CBS
Number of pages42
Publication statusPublished - 2014
SeriesWorking Paper / Department of Economics. Copenhagen Business School
Number2-2014

Cite this

Boom, A., & Buehler, S. (2014). Restructuring the Electricity Industry. Copenhagen Business School, CBS. Working Paper / Department of Economics. Copenhagen Business School, No. 2-2014