 Cost pass-through in the British wholesale electricity marketBowei Guo and Giorgio Castagneto Gissey Energy Economics, 2021, vol. 102, issue C Abstract: Cost pass-through (CPT) rates give a useful perspective of market competition. This article studies how input costs of electricity generation are passed through to the wholesale price in Great Britain between 2015 and 2018. Our empirical results fail to reject the null hypothesis of 100% CPT rates for gas costs and EUA prices (and coal costs for most hours), suggesting a competitive British wholesale electricity market in most hours. We observe a higher CPT rate for coal costs in peak and off-peak periods. This is due to coal plants usually bidding at rates somewhat lower than marginal costs during off-peak periods in order to dispatch at their minimum load to avoid the costs of shutting down and starting back up. Instead, during peak periods the rate of capacity utilisation is high and marginal coal plants tend to exercise their market power, resulting in a higher CPT rate for coal costs. We extend the argument by assessing coal plants’ bidding and find evidence of coal plants exercising market power in hours with high residual demand, generating extreme prices. Keywords: Electricity market; Cost pass-through; Competition; Carbon price (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:102:y:2021:i:c:s0140988321003820 DOI: 10.1016/j.eneco.2021.105497 Access Statistics for this article Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant More articles in Energy Economics from Elsevier |
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