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A novel approach for modeling deregulated electricity markets

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  • Rubin, Ofir D.
  • Babcock, Bruce A.

Abstract

The theoretical framework developed in this study allows development of a model of deregulated electricity markets that explains two familiar empirical findings; the existence of forward premiums and price-cost markups in the spot market. This is a significant contribution because electricity forward premiums have been previously explained exclusively by the assumptions of perfect competition and risk-averse behavior while spot markups are generally the outcome of a body of literature assuming oligopolistic competition. Our theoretical framework indicates that a certain premium for forward contracting is required for efficient allocation of generation capacity. However, due to the uniqueness of electricity and the design of deregulated electricity markets this premium might be substantially higher than its optimal level.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 39 (2011)
Issue (Month): 5 (May)
Pages: 2711-2721

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Handle: RePEc:eee:enepol:v:39:y:2011:i:5:p:2711-2721

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

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Keywords: Deregulated electricity markets Electricity forward premium Oligopoly pricing;

References

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Cited by:
  1. Vahl, Fabrício Peter & Rüther, Ricardo & Casarotto Filho, Nelson, 2013. "The influence of distributed generation penetration levels on energy markets," Energy Policy, Elsevier, vol. 62(C), pages 226-235.

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