Vertical Structure and Forward Contract in Electricity Markets

Yuanjing Li

No 2013-18, Working Papers from Department of Research, Ipag Business School

Abstract: The pro-competitive effects of forward contracts in electricity market can- not be regarded alone without examining the market structure. In this paper, we show that under retail competition, spot market demand uncertainty and risk aversion, partially or fully integrated electricity generators and retailers have less incentives to be involved in trading electricity under forward con- tracts. Therefore, the effect of market power mitigation of forward contracts is countered by this vertical relationship between retailers and generators since it provides a natural hedging device as a substitute of forward contracts to the retailers. Both analytic framework and numerical simulation suggest that the optimal quantity of forward sales decreases and spot price increases with the degree of vertical control of retailers over generators' assets. We thus conclude that the retailers' ownership over generators' profits could give rise to generators exercising market power in electricity spot market.

Keywords: Electricity; forward contracts; vertical integration (search for similar items in EconPapers)
Pages: 27 pages
Date: 2013-01-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://faculty-research.ipag.edu/wp-content/uploa ... IPAG_WP_2013_018.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ipg:wpaper:2013-18

Access Statistics for this paper

More papers in Working Papers from Department of Research, Ipag Business School Contact information at EDIRC.
Bibliographic data for series maintained by Ingmar Schumacher ().