Strategic bidding, wind ownership and regulation in a decentralised electricity market

Darragh Walsh, Laura Malaguzzi Valeri and Valeria Di Cosmo

MPRA Paper from University Library of Munich, Germany

Abstract: Market power often emerges in wholesale electricity markets. Regulators use several strategies to limit market power: adopting bidding rules, compulsory forward markets and enhancing demand response. We study the case of the Irish Single Electricity Market (SEM), where the market will eliminate strict bidding rules to comply with the European Target Electricity Model. Using the PLEXOS unit-commitment model, we simulate the price that emerges in Cournot competition and find that it is more than 60% higher than in perfect competition. We then study how much the price varies with three measures that influence market power. Limiting thermal generators’ ownership of wind generation does not affect prices. Forcing the largest firm to sell some of its output forward decreases prices, but keeps them well above competitive levels. The most effective measure is an increase in price elasticity of demand, although existing evidence shows that it is hard to achieve. We conclude that regulatory oversight of bids will have to continue, although the Target Model will be associated with limited transparency, creating further challenges.

Keywords: regulation; oligopoly; wind generation; forward contracts; demand response (search for similar items in EconPapers)
JEL-codes: L1 L9 (search for similar items in EconPapers)
Date: 2016-05-20
New Economics Papers: this item is included in nep-com, nep-cta, nep-ene and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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