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Strategic Forward Contracting in the Wholesale Electricity Market

Pär Holmberg ()

The Energy Journal, 2011, vol. Volume 32, issue Number 1, 169-202

Abstract: This paper analyses a wholesale electricity market with supply function competition. Trade in the forward and spot markets is represented by a two-stage game, and its subgame perfect Nash equilibrium (SPNE) is characterized. It is verified that increased forward sales of a producer constitute a credible commitment to aggressive spot market bidding. The paper identifies market situations when this pro-competitive commitment is unilaterally profitable for the producer. It is also proven that a producer has incentives to sell in the forward market in order to reduce competitors' forward sales, which softens their spot market offers.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 2011
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