Restructuring Electricity Markets when Demand is Uncertain: Effects on Capacity Investments, Prices and Welfare

Anette Boom and Stefan Buehler

No 2007-09, CIE Discussion Papers from University of Copenhagen. Department of Economics. Centre for Industrial Economics

Abstract: We examine the effects of restructuring electricity markets on capacity investments, retail prices and welfare when demand is uncertain. We study the following market configurations: (i) integrated monopoly, (ii) integrated duopoly with wholesale trade, and (iii) separated duopoly with wholesale trade. Assuming that wholesale prices can react to changes in retail prices (but not vice versa), we find that generators install sufficient capacity to serve retail demand in each market configuration, thus avoiding blackouts. Furthermore, aggregate capacity levels and retail prices are such that the separated (integrated) duopoly with wholesale trade performs best (worst) in terms of welfare.

Keywords: electricity; investments; generating capacities; vertical integration; monopoly and competition (search for similar items in EconPapers)
JEL-codes: D42 D43 D44 L11 L12 L13 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2007-08
New Economics Papers: this item is included in nep-com, nep-ene and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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