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Price Signals in "Energy-only" Wholesale Electricity Markets: An Empirical Analysis of the Price Signal in France

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  • Philippe Vassilopoulos
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    Abstract

    This paper analyzes the price signals of the French wholesale electricity market. We build a model of electricity prices that takes into account several key features of the French electricity market in order to assess the capacity of the price signal to guide investments. Wholesale prices should reflect the imbalances in the generation mix but the signal can be distorted if monopoly rents and/or Òmissing moneyÓ are present. We simulate over the 2003-2005 period theoretical perfectly competitive prices with the installed capacity and with the optimal mix to estimate the capacity imbalances and scarcity rents. We then compare the investment signal sent by observed electricity prices and the theoretical prices with the installed capacity. Although there are signs of market contestability for the mid-merit load, through market integration with the other continental markets, observed prices are too high for the baseload and too low for the peakload, as a result distorting the signal.

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    Bibliographic Info

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

    Volume (Year): Volume 31 (2010)
    Issue (Month): Number 3 ()
    Pages: 83-112

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    Handle: RePEc:aen:journl:2010v31-03-a05

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    Cited by:
    1. Fouquau, Julien & Bessec, Marie & Méritet, Sophie, 2014. "Forecasting electricity spot prices using time-series models with a double temporal segmentation," Economics Papers from University Paris Dauphine 123456789/13532, Paris Dauphine University.

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