The benefits of purely financial participants for wholesale and retail market performance: lessons for long-term resource adequacy mechanism design

Frank A Wolak

Oxford Review of Economic Policy, 2019, vol. 35, issue 2, 260-290

Abstract: In April 2015, Singapore introduced an anonymous futures market for wholesale electricity. Using data on prices and other observable characteristics of all competitive retail contracts signed from October 2014 to March 2016, a larger average quantity of open futures contracts that clear during the term of the retail contract a month before the retail contract starts delivery predicts a lower price for the retail contract. This outcome is consistent with increased futures market purchases by independent retailers causing lower retail prices. Consistent with the logic in Wolak (2000) that a larger volume of fixed-price forward contract obligations leads to offer prices closer to the supplier’s marginal cost of production, a larger volume of futures contracts clearing against short-term wholesale prices predicts lower half-hourly wholesale prices. Both empirical results support introducing purely financial players to improve both retail and wholesale market performance. The paper then outlines how a regulator-mandated standardized futures market can be used as a long-term resource adequacy mechanism for the wholesale market regime.

Keywords: financial participants; electricity markets; market design; market power; vertical integration (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://hdl.handle.net/10.1093/oxrep/grz007 (application/pdf)
Access to full text is restricted to subscribers.

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:oup:oxford:v:35:y:2019:i:2:p:260-290.

Access Statistics for this article

Oxford Review of Economic Policy is currently edited by Christopher Adam

More articles in Oxford Review of Economic Policy from Oxford University Press and Oxford Review of Economic Policy Limited
Bibliographic data for series maintained by Oxford University Press ().