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Supply Function Equilibrium with Taxed Benefits

Keith Ruddell (), A. B. Philpott () and A. Downward ()
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A. B. Philpott: Electric Power Optimization Centre, University of Auckland, Auckland 1010, New Zealand
A. Downward: Electric Power Optimization Centre, University of Auckland, Auckland 1010, New Zealand

Operations Research, 2017, vol. 65, issue 1, 1-18

Abstract: Supply function equilibrium models are used to study electricity market auctions with uncertain demand. We study the effects on the supply function equilibrium of a tax, levied by the system operator, on the observed surplus of producers. Such a tax provides an incentive for producers to alter their offers to avoid the tax. We consider these incentives under both strategic and price-taking assumptions. The model is extended to a setting in which producers are taxed on the benefits accruing to them from a transmission line expansion (a beneficiaries-pay transmission charge). In this setting, we show how this tax may lead to lower prices in equilibrium.

Keywords: supply function equilibrium; energy policies; auctions (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (7)

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