The Impact of Wholesale Price Caps on Forward Contracting

David P. Brown and David E. M. Sappington

The Energy Journal, 2025, vol. 46, issue 4, 253-288

Abstract: Increasing (or eliminating) the caps on short-term wholesale prices is generally thought to promote long-term forward contracting for electricity. We find that a higher price cap typically enhances the incentives of electricity buyers (e.g., load-serving entities) to undertake forward contracting. However, a higher cap can diminish the incentives of electricity generators to engage in forward contracting. Consequently, higher wholesale price caps can reduce industry forward contracting. JEL Classification : L13, L51, L94

Keywords: wholesale price caps; forward contracting; electricity markets (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:46:y:2025:i:4:p:253-288

DOI: 10.1177/01956574251329216

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