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On investment decisions in liberalized electricity markets: the impact of price caps at the spot market
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In this article, the impact of uniform price caps at electricity spot markets on firms investment decisions and on welfare is analyzed, and it is shown that appropriately chosen price caps do always increase firms investment incentives under imperfect competition.Abstract:
We analyze the impact of a uniform price cap at electricity spot markets on firms investment decisions and on welfare. Since investment decisions for those markets are taken in the long run, fluctuating demand at the spot market eventually gives rise to high price spikes in case of binding capacities. Those price spikes are considered to send accurate signals for investment in generation capacities, limiting those spikes by price caps is thought to reduce firms' investment incentives. We are able to show that this is not true for the case of strategic investment behavior. More specifically we analyze a market game where firms choose capacities prior to a spot market which is subject to fluctuating or uncertain demand. We derive, that appropriately chosen price caps do always increase firms investment incentives under imperfect competition. We furthermore characterize the optimal price cap. Based on the theoretical framework, we empirically analyze the impact of uniform price caps on the German electricity market.read more
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References
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Journal ArticleDOI
A Theory of Incentives in Procurement and Regulation.
TL;DR: A Theory of Incentives in Procurement and Regulation (TIIN) as mentioned in this paper is a popular textbook for regulatory economics, with a particular focus on the regulation of natural monopolies such as military contractors, utility companies and transportation authorities.
Book
A Theory of Incentives in Procurement and Regulation
Jean Tirole,Jean-Jacques Laffont +1 more
TL;DR: A Theory of Incentives in Procurement and Regulation (TIIN) as mentioned in this paper is a popular textbook for regulatory economics, with a particular focus on the regulation of natural monopolies such as military contractors, utility companies and transportation authorities.
Book
Power System Economics: Designing Markets for Electricity
TL;DR: In this paper, the authors present a detailed analysis of the real-time power market in theory and in practice, including the day-ahead market and the congestion pricing methods, as well as the two-settlement system.
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Production Planning by Mixed Integer Programming
Yves Pochet,Laurence A. Wolsey +1 more
TL;DR: This textbook provides a comprehensive modeling, reformulation and optimization approach for solving production planning and supply chain planning problems, covering topics from a basic introduction to planning systems, mixed integer programming models and algorithms through the advanced description of mathematical results in polyhedral combinatorics required to solve these problems.
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A Mathematical View of Interior-Point Methods in Convex Optimization
TL;DR: This compact book will take a reader who knows little of interior-point methods to within sight of the research frontier, developing key ideas that were over a decade in the making by numerous interior- point method researchers.