Capacity Choices in Liberalized Electricity Markets

Georges Siotis, Marín Uribe, Pedro Luis and Fidel Castro-Rodriguez

No 2998, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We develop a theoretical model of long-run investment decisions on capacity in the context of a liberalized electricity market. The sector's idiosyncrasies such as the uncertainty surrounding future supply and demand, as well as technological constraints, are explicitly modelled. The model is sufficiently flexible to describe the situation in different systems. We derive the level of capacity that maximizes social welfare, and compare it to a decentralized outcome. We show that in the absence of any regulation, private investment decisions on capacity unambiguously lead to a socially sub-optimal outcome, and we illustrate these results using simulations.

Keywords: Electricity; Capacity; Long-run investment; Regulation; Liberalization (search for similar items in EconPapers)
JEL-codes: L13 L43 L94 (search for similar items in EconPapers)
Date: 2001-10
References: Add references at CitEc
Citations: View citations in EconPapers (14)

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Journal Article: Capacity choices in liberalised electricity markets (2009)
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