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Demand Elasticity and Market Power in the Spanish Electricity Market

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  • Aitor Ciarreta

    ()
    (Departamento de Fundamentos del Analisis Economico II, Universidad del Pais Vasco)

  • Maria Paz Espinosa

    ()
    (Departamento de Fundamentos del Analisis Economico II, Universidad del Pais Vasco)

Abstract

In this paper we check whether generators' bid behavior at the Spanish wholesale electricity market is consistent with the hypothesis of pro?fit maximization on their residual demands. Using OMEL data, we ?find the arc-elasticity of the residual demand around the system marginal price. The results suggest that the larger ?firms are not actually pro?fit-maximizing on their residual demands while smaller generators' behavior is consistent with profit maximization. We argue how the regulatory environment may drive these results. Finally, we repeat the analysis for the ?first session of the intra-day market where presumably ?firms may not have the same incentives as in the day-ahead market

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Bibliographic Info

Paper provided by Department of Business Economics, Universitat Autonoma de Barcelona in its series Working Paper with number 200606.

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Date of creation: Jul 2006
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Handle: RePEc:bbe:wpaper:200606

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Keywords: market power; electricity market; residual demand elasticity; pro?fit maximization;

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