The Competitive Effects of Linking Electricity Markets Across Space and Time

Thomas Tangerås () and Frank A. Wolak ()
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Frank A. Wolak: Program on Energy and Sustainable Development and Department of Economics, Postal: Stanford University, Stanford, CA, USA

No 1184, Working Paper Series from Research Institute of Industrial Economics

Abstract: We show that a common regulatory mandate in electricity markets that use location-based pricing that requires all customers to purchase their wholesale electricity at the same quantity-weighted average of the locational prices can increase the performance of imperfectly competitive wholesale electricity markets. Linking locational markets strengthens the incentive for vertically integrated firms to participate in the retail market, which increases competition in the short-term wholesale market. In contrast, linking locational markets through a long-term contract that clears against the quantity-weighted average of short-term wholesale prices does not impact average wholesale market performance. These results imply that a policy designed to address equity considerations can also enhance efficiency in wholesale electricity markets.

Keywords: Electricity markets; Equity; Market design; Market performance; Market power; Vertical integration (search for similar items in EconPapers)
JEL-codes: C72 D43 G10 G13 L13 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2017-10-17
New Economics Papers: this item is included in nep-com, nep-des, nep-ene and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:1184

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