Supply Flexibility and risk transfer in electricity markets
Claude Crampes and
Jérôme Renault
No 22-1350, TSE Working Papers from Toulouse School of Economics (TSE)
Abstract:
Power producers using plants with controllable output rely on partially flexible technologies to adapt to the variability of production from intermittent renewable energy sources and of end demand. We analyze the adjustment of production up or down as part of a two-stage decision process, in which firms compete at low cost for planned quantities before the demand function is known, and adjust production at high cost when the actual state of demand is revealed. We first compute the first best and competitive outcomes. Then we consider the outcome of imperfect competition. We begin with an analysis of the monopoly case, then we determine the duopoly subgame perfect equilibria corresponding to two market designs: one where all trade occurs in an intra-day market with known demand, the other where a day-ahead market with random demand is added to the intra-day market. We show that being inflexible can be more profitable than being flexible. We also show that adding a day-ahead market to the intra-day market increases welfare but transfers risks from firms to consumers. The transfer is all the more important as technologies are not very flexible.
Keywords: flexibility; electricity; market design; intra-day market; day-ahead market; risk transfer (search for similar items in EconPapers)
JEL-codes: C72 D24 D47 L23 L94 (search for similar items in EconPapers)
Date: 2022-07-28, Revised 2025-08
New Economics Papers: this item is included in nep-com, nep-ene, nep-gth, nep-ind and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations:
Downloads: (external link)
https://www.tse-fr.eu/sites/default/files/TSE/docu ... 2022/wp_tse_1350.pdf Full Text (application/pdf)
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:tse:wpaper:127219
Access Statistics for this paper
More papers in TSE Working Papers from Toulouse School of Economics (TSE) Contact information at EDIRC.
Bibliographic data for series maintained by ().