IDEAS home Printed from https://ideas.repec.org/a/eco/journ2/2013-03-8.html
   My bibliography  Save this article

Trading Forward in the Brazilian Electricity Market

Author

Listed:
  • Paulo Cesar Coutinho

    (Department of Accounting, University of Brasilia, Brasilia, Brazil)

  • Andre Rossi de Oliveira

    (Finance and Economics Department, Woodbury School of Business, Utah Valley University, Orem, UT, USA)

Abstract

We study the interaction between forward and spot electricity markets in a scenario where buyers and sellers are price takers in the forward market and trade through marketers, who play a Cournot game. Our model s main features come from the Brazilian electricity market, where a free contract market coexists with a regulated contract market, and the spot price is the output of a stochastic dynamic algorithm. We are able to show that the price of energy bought (sold) forward decreases (increases) with the number of marketers, and that, as a result, full hedging is achieved in the limit. We also investigate the effects on prices of changes in the number of market participants and in aggregate consumption and supply, an exercise that yields important policy recommendations for the Brazilian regulator.

Suggested Citation

  • Paulo Cesar Coutinho & Andre Rossi de Oliveira, 2013. "Trading Forward in the Brazilian Electricity Market," International Journal of Energy Economics and Policy, Econjournals, vol. 3(3), pages 272-287.
    • Handle: RePEc:eco:journ2:2013-03-8
    as

    Download full text from publisher

    File URL: http://www.econjournals.com/index.php/ijeep/article/download/499/293
    Download Restriction: no
    File URL: http://www.econjournals.com/index.php/ijeep/article/view/499/293
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Allaz Blaise & Vila Jean-Luc, 1993. "Cournot Competition, Forward Markets and Efficiency," Journal of Economic Theory, Elsevier, vol. 59(1), pages 1-16, February.
    2. Mahenc, P. & Salanie, F., 2004. "Softening competition through forward trading," Journal of Economic Theory, Elsevier, vol. 116(2), pages 282-293, June.
    3. Richard Green, 1999. "The Electricity Contract Market in England and Wales," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 107-124, March.
    4. Nodir Adilov, 2010. "Bilateral Forward Contracts and Spot Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 67-82.
    5. Blaise Allaz & Jean-Luc Vila, 1993. "Cournot Competition, Forward Markets and Efficiency," Post-Print hal-00511806, HAL.
    6. Dutra, Joisa & Menezes, Flavio, 2005. "Lessons from the Electricity Auctions in Brazil," The Electricity Journal, Elsevier, vol. 18(10), pages 11-21, December.
    7. Aitor Ciarreta & Maria Paz Espinosa, 2010. "Supply Function Competition in the Spanish Wholesale Electricity Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 137-158.
    8. Powell, Andrew, 1993. "Trading Forward in an Imperfect Market: The Case of Electricity in Britain," Economic Journal, Royal Economic Society, vol. 103(417), pages 444-453, March.
    9. Catherine D. Wolfram, 1998. "Strategic Bidding in a Multiunit Auction: An Empirical Analysis of Bids to Supply Electricity in England and Wales," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 703-725, Winter.
    10. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-953, October.
    11. Green, Richard, 1999. "The Electricity Contract Market in England and Wales," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 107-124, March.
    12. James Bushnell, 2007. "Oligopoly equilibria in electricity contract markets," Journal of Regulatory Economics, Springer, vol. 32(3), pages 225-245, December.
    13. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-1277, November.
    14. Green, Richard & Le Coq, Chloé, 2010. "The length of contracts and collusion," International Journal of Industrial Organization, Elsevier, vol. 28(1), pages 21-29, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Daglish, Toby & de Bragança, Gabriel Godofredo Fiuza & Owen, Sally & Romano, Teresa, 2021. "Pricing effects of the electricity market reform in Brazil," Energy Economics, Elsevier, vol. 97(C).
    2. Nnaemeka Vincent Emodi & Kyung-Jin Boo, 2015. "Decomposition Analysis of CO2 Emissions from Electricity Generation in Nigeria," International Journal of Energy Economics and Policy, Econjournals, vol. 5(2), pages 565-573.
    3. Victor Moutinho & Ant nio Carrizo Moreira & Jorge H. Mota, 2015. "Measuring the Simultaneous Quantity Game in OMEL Spot Electricity Market," International Journal of Energy Economics and Policy, Econjournals, vol. 5(1), pages 305-320.
    4. Komain Jiranyakul, 2015. "Oil Price Volatility and Real Effective Exchange Rate: The Case of Thailand," International Journal of Energy Economics and Policy, Econjournals, vol. 5(2), pages 574-579.
    5. Marin s Taffarel & Wesley Vieira da Silva & Ademir Clemente & Claudimar Pereira da Veiga & Jansen Maia Del Corso, 2015. "The Brazilian Electricity Energy Market: The Role of Regulatory Content Intensity and Its Impact on Capital Shares Risk," International Journal of Energy Economics and Policy, Econjournals, vol. 5(1), pages 288-304.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Daron Acemoglu, Ali Kakhbod, and Asuman Ozdaglar, 2017. "Competition in Electricity Markets with Renewable Energy Sources," The Energy Journal, International Association for Energy Economics, vol. 0(KAPSARC S).
    2. Baldursson , Fridrik M. & von der Fehr, Nils-Henrik, 2007. "Vertical Integration and Long-Term Contracts in Risky Markets," Memorandum 01/2007, Oslo University, Department of Economics.
    3. Fiuza de Bragança, Gabriel Godofredo & Daglish, Toby, 2016. "Can market power in the electricity spot market translate into market power in the hedge market?," Energy Economics, Elsevier, vol. 58(C), pages 11-26.
    4. Holmberg, Pär & Willems, Bert, 2015. "Relaxing competition through speculation: Committing to a negative supply slope," Journal of Economic Theory, Elsevier, vol. 159(PA), pages 236-266.
    5. Fabra, Natalia & de Frutos, Maria-Angeles, 2008. "On the Impact of Forward Contract Obligations in Multi-Unit Auctions," CEPR Discussion Papers 6756, C.E.P.R. Discussion Papers.
    6. Holmberg, Pär & Newbery, David, 2010. "The supply function equilibrium and its policy implications for wholesale electricity auctions," Utilities Policy, Elsevier, vol. 18(4), pages 209-226, December.
    7. James B. Bushnell & Erin T. Mansur & Celeste Saravia, 2008. "Vertical Arrangements, Market Structure, and Competition: An Analysis of Restructured US Electricity Markets," American Economic Review, American Economic Association, vol. 98(1), pages 237-266, March.
    8. Dressler, Luisa, 2016. "Support schemes for renewable electricity in the European Union: Producer strategies and competition," Energy Economics, Elsevier, vol. 60(C), pages 186-196.
    9. Serra, Pablo, 2013. "Contract market power and its impact on the efficiency of the electricity sector," Energy Policy, Elsevier, vol. 61(C), pages 653-662.
    10. de Frutos, María-Ángeles & Fabra, Natalia, 2012. "How to allocate forward contracts: The case of electricity markets," European Economic Review, Elsevier, vol. 56(3), pages 451-469.
    11. Wölfing, Nikolas, 2019. "Forward trading and collusion in supply functions," ZEW Discussion Papers 19-003, ZEW - Leibniz Centre for European Economic Research.
    12. Miguel Vazquez, 2012. "Analysis of the strategic use of forward contracting in electricity markets," RSCAS Working Papers 2012/13, European University Institute.
    13. van Koten, Silvester & Ortmann, Andreas, 2013. "Structural versus behavioral remedies in the deregulation of electricity markets: An experimental investigation motivated by policy concerns," European Economic Review, Elsevier, vol. 64(C), pages 256-265.
    14. David P. Brown & Andrew Eckert, 2017. "Electricity market mergers with endogenous forward contracting," Journal of Regulatory Economics, Springer, vol. 51(3), pages 269-310, June.
    15. Rubin, Ofir D. & Babcock, Bruce A., 2011. "A novel approach for modeling deregulated electricity markets," Energy Policy, Elsevier, vol. 39(5), pages 2711-2721, May.
    16. Aitor Ciarreta & María Espinosa, 2010. "Market power in the Spanish electricity auction," Journal of Regulatory Economics, Springer, vol. 37(1), pages 42-69, February.
    17. Hauteclocque, Adrien de & Glachant, Jean-Michel, 2009. "Long-term energy supply contracts in European competition policy: Fuzzy not crazy," Energy Policy, Elsevier, vol. 37(12), pages 5399-5407, December.
    18. Paizs, László & Mészáros, Mátyás Tamás, 2003. "Piachatalmi problémák modellezése a dereguláció utáni magyar áramtermelő piacon [Modelling problems of market power on the Hungarian electricity-generation market after deregulation]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 735-764.
    19. Jordi Brandts & Paul Pezanis‐Christou & Arthur Schram, 2008. "Competition with forward contracts: a laboratory analysis motivated by electricity market design," Economic Journal, Royal Economic Society, vol. 118(525), pages 192-214, January.
    20. James Bushnell, 2007. "Oligopoly equilibria in electricity contract markets," Journal of Regulatory Economics, Springer, vol. 32(3), pages 225-245, December.

    More about this item

    Keywords

    Forward and spot markets; marketers; Brazilian electricity market; Cournot; hedging;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eco:journ2:2013-03-8. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ilhan Ozturk (email available below). General contact details of provider: http://www.econjournals.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.