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Wind power and market power in competitive markets

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  • Twomey, Paul
  • Neuhoff, Karsten

Abstract

Average market prices for intermittent generation technologies are lower than for conventional generation. This has a technical reason but can be exaggerated in the presence of market power. When there is much wind smaller amounts of conventional generation technologies are required, and prices are lower, while at times of little wind prices are higher. This effect reflects the value of different generation technologies to the system. But under conditions of market power, conventional generators with market power can further depress the prices if they have to buy back energy at times of large wind output and can increase prices if they have to sell additional power at times of little wind output. This greatly exaggerates the effect. Forward contracting does not reduce the effect. An important consequence is that allowing market power profit margins as a support mechanism for generation capacity investment is not a technologically neutral policy.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 38 (2010)
Issue (Month): 7 (July)
Pages: 3198-3210

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Handle: RePEc:eee:enepol:v:38:y:2010:i:7:p:3198-3210

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Web page: http://www.elsevier.com/locate/enpol

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Keywords: Wind power Oligopoly pricing Intermittency;

References

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Citations

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Cited by:
  1. Lion Hirth, 2013. "The Market Value of Variable Renewables. The Effect of Solar and Wind Power Variability on their Relative Price," RSCAS Working Papers 2013/36, European University Institute.
  2. 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.
  3. Forrest, Sam & MacGill, Iain, 2013. "Assessing the impact of wind generation on wholesale prices and generator dispatch in the Australian National Electricity Market," Energy Policy, Elsevier, vol. 59(C), pages 120-132.
  4. repec:spo:wpecon:info:hdl:2441/53r60a8s3kup1vc9l564igg8g is not listed on IDEAS
  5. Jean-Luc Gaffard & Mauro Napoletano, 2012. "Agent-based models and economic policy," Sciences Po publications info:hdl:2441/53r60a8s3ku, Sciences Po.
  6. Hirth, Lion, 2013. "The market value of variable renewables," Energy Economics, Elsevier, vol. 38(C), pages 218-236.
  7. Green, Richard & Vasilakos, Nicholas, 2011. "The economics of offshore wind," Energy Policy, Elsevier, vol. 39(2), pages 496-502, February.
  8. Würzburg, Klaas & Labandeira, Xavier & Linares, Pedro, 2013. "Renewable generation and electricity prices: Taking stock and new evidence for Germany and Austria," Energy Economics, Elsevier, vol. 40(S1), pages S159-S171.
  9. Richard S.J. Tol & Muireann Lynch & Aonghus Shortt & Mark O’Malley, 2012. "Risk-Return Incentives in Liberalised Electricity Markets," Working Paper Series 4012, Department of Economics, University of Sussex.
  10. Schaber, Katrin & Steinke, Florian & Hamacher, Thomas, 2012. "Transmission grid extensions for the integration of variable renewable energies in Europe: Who benefits where?," Energy Policy, Elsevier, vol. 43(C), pages 123-135.
  11. Mauritzen, Johannes, 2012. "Dead Battery? Wind Power, the Spot Market, and Hydro Power Interaction in the Nordic Electricity Market," Working Paper Series 908, Research Institute of Industrial Economics.

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