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Model-Based Comparisons of Pool and Bilateral Markets for Electricity

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  • John Bower
  • Derek W. Bunn
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    Abstract

    A variety of market mechanisms have been proposed and implemented around the world in order to create competitive electricity pools and exchanges. However, it is an open question whether pool-based daily auctions or continuous bilateral trading deliver different prices under conditions of market power. In this paper we present a computationally intensive simulation model of the wholesale electricity market in England and Wales to isolate and systematically test the potential impact of alternative trading arrangements on electricity prices. After eight years of trading under a pool-based system, proposals were initiated in 1998 to change the market in England and Wales to bilateral trading. This paper uses an agent-based simulation to evaluate two important aspects of that proposal. The results show that daily bidding with Pay SMP settlement, as in the original Pool day-ahead market, produces the lowest prices while hourly bidding with Pay Bid settlement, as proposed for the bilateral model, produces the highest prices.

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    Bibliographic Info

    Article provided by International Association for Energy Economics in its journal The Energy Journal.

    Volume (Year): Volume21 (2000)
    Issue (Month): Number 3 ()
    Pages: 1-29

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    Handle: RePEc:aen:journl:2000v21-03-a01

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    Cited by:
    1. Ventosa, Mariano & Baillo, Alvaro & Ramos, Andres & Rivier, Michel, 2005. "Electricity market modeling trends," Energy Policy, Elsevier, vol. 33(7), pages 897-913, May.
    2. Neuhoff, Karsten & Barquin, Julian & Boots, Maroeska G. & Ehrenmann, Andreas & Hobbs, Benjamin F. & Rijkers, Fieke A.M. & Vazquez, Miguel, 2005. "Network-constrained Cournot models of liberalized electricity markets: the devil is in the details," Energy Economics, Elsevier, vol. 27(3), pages 495-525, May.
    3. Sebastian Just, 2011. "Appropriate contract durations in the German markets for on-line reserve capacity," Journal of Regulatory Economics, Springer, vol. 39(2), pages 194-220, April.
    4. Heikki Kemppi & Adriaan Perrels, 2003. "Liberalised Electricity Markets - Strengths and Weaknesses in Finland and Nordpool," Research Reports 97, Government Institute for Economic Research Finland (VATT).
    5. Albert Banal-Estañol & Augusto Rupérez-Micola, 2010. "Are agent-based simulations robust? The wholesale electricity trading case," Economics Working Papers 1214, Department of Economics and Business, Universitat Pompeu Fabra.
    6. Azadeh, A. & Skandari, M.R. & Maleki-Shoja, B., 2010. "An integrated ant colony optimization approach to compare strategies of clearing market in electricity markets: Agent-based simulation," Energy Policy, Elsevier, vol. 38(10), pages 6307-6319, October.
    7. Green, Richard, 2003. "Failing electricity markets: should we shoot the pools?," Utilities Policy, Elsevier, vol. 11(3), pages 155-167, September.
    8. Green, Richard, 2006. "Market power mitigation in the UK power market," Utilities Policy, Elsevier, vol. 14(2), pages 76-89, June.
    9. Banal-Estañol, Albert & Rupérez Micola, Augusto, 2011. "Behavioural simulations in spot electricity markets," European Journal of Operational Research, Elsevier, vol. 214(1), pages 147-159, October.
    10. Li, Ying & Flynn, Peter C., 2004. "Deregulated power prices: comparison of diurnal patterns," Energy Policy, Elsevier, vol. 32(5), pages 657-672, March.
    11. Weidlich, Anke & Veit, Daniel, 2008. "A critical survey of agent-based wholesale electricity market models," Energy Economics, Elsevier, vol. 30(4), pages 1728-1759, July.
    12. Garcia, Alfredo & Arbelaez, Luis E., 2002. "Market power analysis for the Colombian electricity market," Energy Economics, Elsevier, vol. 24(3), pages 217-229, May.

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