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Electricity prices and generator behaviour in gross pool electricity markets

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  • O'Mahoney, Amy
  • Denny, Eleanor

Abstract

Electricity market liberalisation has become common practice internationally. The justification for this process has been to enhance competition in a market traditionally characterised by statutory monopolies in an attempt to reduce costs to end-users. This paper endeavours to see whether a pool market achieves this goal of increasing competition and reducing electricity prices. Here the electricity market is set up as a sealed bid second price auction. Theory predicts that such markets should result with firms bidding their marginal cost, thereby resulting in an efficient outcome and lower costs to consumers. The Irish electricity system with a gross pool market experiences among the highest electricity prices in Europe. Thus, we analyse the Irish pool system econometrically in order to test if the high electricity prices seen there are due to participants bidding outside of market rules or out of line with theory. Overall we do not find any evidence that the interaction between generator and the pool in the Irish electricity market is not efficient. Thus, the pool element of the market structure does not explain the high electricity prices experienced in Ireland.

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  • O'Mahoney, Amy & Denny, Eleanor, 2013. "Electricity prices and generator behaviour in gross pool electricity markets," Energy Policy, Elsevier, vol. 63(C), pages 628-637.
    • Handle: RePEc:eee:enepol:v:63:y:2013:i:c:p:628-637
    DOI: 10.1016/j.enpol.2013.08.098
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    2. Lynch, Muireann Á. & Longoria, Genora & Curtis, John, 2021. "Future market design options for electricity markets with high RES-E: lessons from the Irish Single Electricity Market," Papers WP702, Economic and Social Research Institute (ESRI).
    3. Hansol Shin & Tae Hyun Kim & Kyuhyeong Kwag & Wook Kim, 2021. "A Comparative Study of Pricing Mechanisms to Reduce Side-Payments in the Electricity Market: A Case Study for South Korea," Energies, MDPI, vol. 14(12), pages 1-19, June.
    4. Bjørndal, Endre & Bjørndal, Mette Helene & Coniglio, Stefano & Körner, Marc-Fabian & Leinauer, Christina & Weibelzahl, Martin, 2023. "Energy storage operation and electricity market design: On the market power of monopolistic storage operators," European Journal of Operational Research, Elsevier, vol. 307(2), pages 887-909.
    5. Oseni, Musiliu O. & Pollitt, Michael G., 2014. "Institutional arrangements for the promotion of regional integration of electricity markets : international experience," Policy Research Working Paper Series 6947, The World Bank.
    6. Juan Ignacio Pe~na & Rosa Rodriguez, 2022. "Are EU Climate and Energy Package 20-20-20 targets achievable and compatible? Evidence from the impact of renewables on electricity prices," Papers 2202.01720, arXiv.org.
    7. Swinand, Gregory P. & O'Mahoney, Amy, 2015. "Estimating the impact of wind generation and wind forecast errors on energy prices and costs in Ireland," Renewable Energy, Elsevier, vol. 75(C), pages 468-473.
    8. Muireann Á. Lynch & Richard Tol & Mark J. O’Malley, 2014. "Minimising costs and variability of electricity generation by means of optimal electricity interconnection utilisation," Working Paper Series 6814, Department of Economics, University of Sussex Business School.
    9. Guan Wang & Zhongfu Tan & Hongyu Lin & Qingkun Tan & Shenbo Yang & Liwei Ju & Zhongrui Ren, 2019. "Multi-Level Market Transaction Optimization Model for Electricity Sales Companies with Energy Storage Plant," Energies, MDPI, vol. 12(1), pages 1-14, January.
    10. Zareen, N. & Mustafa, M.W. & Sultana, U. & Nadia, R. & Khattak, M.A., 2015. "Optimal real time cost-benefit based demand response with intermittent resources," Energy, Elsevier, vol. 90(P2), pages 1695-1706.
    11. Román-Collado, Rocío & Cansino, José M. & Colinet, María J. & Dugo, Víctor, 2020. "A tool proposal to detect operating anomalies in the Spanish wholesale electricity market," Energy Policy, Elsevier, vol. 142(C).
    12. Lynch, Muireann & Longoria, Genaro & Curtis, John, 2021. "Market design options for electricity markets with high variable renewable generation," Utilities Policy, Elsevier, vol. 73(C).
    13. Bublitz, Andreas & Keles, Dogan & Fichtner, Wolf, 2017. "An analysis of the decline of electricity spot prices in Europe: Who is to blame?," Energy Policy, Elsevier, vol. 107(C), pages 323-336.
    14. O’Mahoney, Amy & Thorne, Fiona & Denny, Eleanor, 2013. "A cost-benefit analysis of generating electricity from biomass," Energy Policy, Elsevier, vol. 57(C), pages 347-354.

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    More about this item

    Keywords

    Electricity markets; Auction theory; Multiple regression analysis;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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