The Impact of Wholesale Price Caps on Forward Contracting

David Brown and David Sappington

No 2022-12, Working Papers from University of Alberta, Department of Economics

Abstract: It has been suggested that increasing (or eliminating) the caps on short-term wholesale prices will increase long-term forward contracting for electricity. We find that a higher price cap often 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 are not certain to increase industry forward contracting.

Keywords: wholesale price caps; forward contracting; electricity markets (search for similar items in EconPapers)
JEL-codes: L51 L94 Q28 Q40 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2022-10-19
New Economics Papers: this item is included in nep-cta, nep-ene and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:ris:albaec:2022_012

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