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Investment in electricity markets with asymmetric technologies

Talat Genc () and Henry Thille

Energy Economics, 2011, vol. 33, issue 3, 379-387

Abstract: Capacity investments in electricity markets is one of the main issues in the restructuring process to ensure competition and enhance system security of networks. We study competition between hydro and thermal electricity generators under demand uncertainty. Producers compete in quantities and each is constrained: the thermal generator by capacity and the hydro generator by water availability. We analyze a two-period game emphasizing the incentives for capacity investments by the thermal generator. We characterize both Markov perfect and open-loop equilibria. In the Markov perfect equilibrium, investment is discontinuous in initial capacity and higher than it is in the open-loop equilibrium. However, since there are two distortions in the model, equilibrium investment can be either higher or lower than the efficient investment.

Keywords: Electricity; markets; Dynamic; game; Duopoly; Capacity; investment (search for similar items in EconPapers)
Date: 2011
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Related works:
Working Paper: Investment in Electricity Markets with Asymmetric Technologies (2009) Downloads
Working Paper: Investment in Electricity Markets with Asymmetric Technologies (2009) Downloads
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