The Impact of Behavioral and Structural Remedies on Electricity Prices: The Case of the England and Wales Electricity Market

Sherzod Tashpulatov ()

Energies, 2018, vol. 11, issue 12, 1-24

Abstract: During the liberalization process the UK regulatory authority introduced a behavioral remedy (through price-cap regulation) and structural remedy (through divestment series) in order to mitigate an exercise of market power and lower the influence of incumbent producers on wholesale electricity prices. We study the impact of these remedies on the dynamics of the wholesale electricity price during the peak-demand period over trading days. An extended autoregressive and autoregressive conditional heteroscedasticity ( AR – ARCH ) model with a novel skew generalized error distribution is used. This distribution allows one to capture the features of asymmetry, excess kurtosis, and heavy tails. The model is extended to include individual incumbent producers’ market shares and other explanatory variables reflecting seasonal patterns and regulatory regimes. We find that the structural remedy was more successful than the behavioral remedy because the effect of market share of the previously larger incumbent producer on the wholesale price is statistically insignificant. Moreover, after the second series of divestments, price volatility reduced.

Keywords: electricity price; uniform price auction; skew generalized error distribution; conditional volatility; regulation (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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