Supply Flexibility and risk transfer in electricity markets
Claude Crampes () and
No 22-1350, TSE Working Papers from Toulouse School of Economics (TSE)
The producers of electricity using dispatchable plants rely on partially flexible technologies to match the variability of both demand and production from renewables. We analyse upward and downward flexibility in a two-stage decision process where firms compete in quantities produced ex ante at low cost and ex post at high cost to supply a random residual demand. We first compute the first best and competitive outcomes, then we determine the subgame perfect equilibria corresponding to two market designs: one where all trade occurs in a spot market with known demand, the other where a day-ahead market with random demand is added to the ex-post market, first in a general setting, then using a quadratic specification. We show that being inflexible can be more profitable than being flexible. We also show that adding a day-ahead market to the spot market increases welfare but transfers risks from firms to consumers.
Keywords: flexibility; electricity; market design; risk transfer (search for similar items in EconPapers)
JEL-codes: C72 D24 D47 L23 L94 (search for similar items in EconPapers)
Date: 2022-07-28, Revised 2022-11
New Economics Papers: this item is included in nep-com, nep-ene, nep-gth, nep-ind and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:127219
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