Forward contracts in electricity markets and capacity investment: A simulation study
Álvarez-Uribe, Karla C.,
Arango-Aramburo, Santiago and
Erik R. Larsen
Utilities Policy, 2018, vol. 54, issue C, 1-10
This simulation study analyzes the effect of the introduction of forward markets to mitigate cyclical price behavior in electricity markets from a dynamic extended Cobweb model. We pay particular attention to the effect of lags in investment decisions and the effect of not fully replacing retired capacity in electricity markets. In line with previous research, the introduction of forward markets decreases price variability in comparison to a spot market. However, we also observe that lags in investment decisions and the failure to fully replace retired capacity create capacity investments cycles even in the presence a forward market.
Keywords: Electricity markets; Cournot markets; Cobweb model; Forward markets; Complexity (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:juipol:v:54:y:2018:i:c:p:1-10
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