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Do producers apply a capacity cutting strategy to increase prices? The case of the England and Wales electricity market

Lubomir Lizal and Sherzod Tashpulatov ()

Energy Economics, 2014, vol. 43, issue C, 114-124

Abstract: Promoting competition among electricity producers is primarily targeted at ensuring fair electricity prices for consumers. Producers could, however, withhold part of production facilities (i.e., apply a capacity cutting strategy) and thereby push more expensive production facilities to satisfy demand for electricity. This behavior could lead to a higher price determined through a uniform price auction. Using the case of the England and Wales wholesale electricity market we empirically analyze whether producers indeed did apply a capacity cutting strategy. For this purpose we examine the bidding behavior of producers during high- and low-demand trading periods within a trading day. We find statistical evidence for the presence of capacity cutting by several producers, which is consistent with the regulatory authority's reports.

Keywords: Capacity bids; Electricity prices; Uniform price auction; Regulation (search for similar items in EconPapers)
JEL-codes: D22 D44 L50 L94 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.eneco.2014.02.007

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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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