Efficient Pricing of Electricity Revisited

Mathias Mier

No 342, ifo Working Paper Series from ifo Institute - Leibniz Institute for Economic Research at the University of Munich

Abstract: Increasing shares of intermittent renewable energies challenge the dominant way to trade electricity ex-ante in forward, day-ahead, and intraday markets: Coal power plants and consumers cannot react to the stochastic element of renewables, whereas gas turbines can. We use a theoretical model to analyze behavior of final consumers and incentives of perfectly competitive firms to invest in different types of technologies under ex-ante pricing. Curtailed consumers need to get compensated in high of their disruption cost. Coal power firms recover cost. Renewables and gas turbine firms fail. We identify imperfections that arise from the delay in price setting and market clearing. Do real-time prices induce an efficient outcome? Consumers need to get taxed in high of rationing cost. Support is redundant for gas turbine firms, but renewables firms still fail to recover cost because the spatially distributed nature of renewables creates an output risk.

Keywords: Efficient pricing; market design; capacity mechanisms; renewable energies; supply uncertainty; consumer behavior (search for similar items in EconPapers)
JEL-codes: D41 D47 L94 L98 Q41 Q48 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-com, nep-ene, nep-ore and nep-reg
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Journal Article: Efficient pricing of electricity revisited (2021)
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