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Optimal Willingness to Supply Wholesale Electricity under Asymmetric Linearized Marginal Costs

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  • David Hudgins

    (Department of Economics, University of Oklahoma, USA)

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    Abstract

    This analysis derives the profit-maximizing willingness to supply functions for singleplant and multi-plant wholesale electricity suppliers that all incur linear marginal costs. The optimal strategy must result in linear residual demand functions in the absence of capacity constraints. This necessarily leads to a linear pricing rule structure that can be used by firm managers to construct their offer curves and to serve as a benchmark to evaluate firm profit-maximizing behavior. The procedure derives the cost functions and the residual demand curves for merged or multi-plant generators, and uses these to construct the individual generator plant offer curves for a multi-plant firm.

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    Bibliographic Info

    Article provided by Econjournals in its journal International Journal of Energy Economics and Policy.

    Volume (Year): 2 (2012)
    Issue (Month): 4 ()
    Pages: 307-317

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    Handle: RePEc:eco:journ2:2012-04-9

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    Web page: http://www.econjournals.com

    Related research

    Keywords: Wholesale Electricity; Cost; Willingness to Supply; Linear Analysis; Multi-Plant; Asymmetric;

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    1. Talat S. Genc & Stanley S. Reynolds, 2010. "Supply Function Equilibria with Capacity Constraints and Pivotal Suppliers," Working Papers 1007, University of Guelph, Department of Economics and Finance.
    2. Richard Green, 2007. "Nodal pricing of electricity: how much does it cost to get it wrong?," Journal of Regulatory Economics, Springer, vol. 31(2), pages 125-149, April.
    3. Holmberg, P. & Newbery, D & Ralph, D., 2008. "Supply Function Equilibria: Step Functions and Continuous Representations," Cambridge Working Papers in Economics 0863, Faculty of Economics, University of Cambridge.
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