Intertemporal effects of imperfect competition through forward contracts in wholesale electricity markets

Camilo A. Gallego

Energy Economics, 2022, vol. 107, issue C

Abstract: This paper quantifies how market power and uncompetitive behavior in forward markets affect equilibrium prices to the detriment of consumers in the electricity industry in Colombia. The literature on competition in wholesale electricity markets has largely overlooked the effect of forward contracts on market power. This paper shows how the inclusion of price-endogenous forward contract terms—which are usually unobserved in wholesale electricity markets—can deteriorate competition. The presence of a deregulated and bilateral over-the-counter medium-term market in the electricity industry facilitates the imposition of special contract terms that can be exploited in favor of participants with market power. Using public reports from the Colombian independent system operator, I find evidence of an increasingly prevalent type of contract imposing terms that transfer risks from the medium- to the short-term market (intertemporal effect). I model these endogenous forward contracts, ef, to determine market equilibrium prices for end users. Thus, I develop an agent-based optimization model considering the real form (step function) of the residual demand in view of real constraints in hydroelectricity markets (i.e., water management in reservoirs). I propose a genetic algorithm to estimate results, and I use the Colombian electricity market as case study. I find that the use of endogenous forward contracts increases spot prices.

Keywords: Market power; Competition; Electricity markets; Genetic algorithms; Energy regulation (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S014098832200024X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:107:y:2022:i:c:s014098832200024x

DOI: 10.1016/j.eneco.2022.105835

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
Bibliographic data for series maintained by Catherine Liu ().