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The effects of changes in the regulation of the Colombian wholesale electricity market in a structural model of complex auctions

Author

Listed:
  • Jorge Balat
  • Juan Esteban Carranza
  • Juan David Martin
  • Alvaro Riascos

Abstract

We investigate the effects of a change in the regulation of the spot market for electricity in Colombia that took place in 2009. Specifically, the regulation switched from an auction mechanism with simple bids to one with complex bids to allow generators to separately bid on variable and quasi-fixed components. This greater exibility was introduced to reduce production inefficiencies that arise from non-convexities in the cost structures of thermal generators. In this paper, we estimate and compute a structural model to quantify the effects of this change on allocation efficiency along with the effects on the wholesale price of electricity in Colombia. Consistently with previous reduced form evidence, we show that the production efficiency increased under the new dispatch mechanism, but prices increased. ****RESUMEN: En este documento investigamos los efectos de un cambio en la regulación del mercado spot de electricidad en Colombia, que tuvo lugar en 2009. Específicamente, la regulación cambió de un esquema de subastas simples a uno de subastas complejas para permitir a los generadores hacer ofertas separadas de los componentes fijos y variables de sus costos. El aumento en la flexibilidad tuvo como objeto la reducción de las ineficiencias que resultan de las no-convexidades en las estructuras de costos de los generadores térmicos. Estimamos y computamos un modelos estructural que cuantifica los efectos de este cambio en la eficiencia del despacho de energía y en los precios mayoristas. De forma consistente con resultados descriptivos previos, encontramos que bajo el nuevo mecanismo de despacho se incrementó la eficiencia, pero los precios se incrementaron.

Suggested Citation

  • Jorge Balat & Juan Esteban Carranza & Juan David Martin & Alvaro Riascos, 2022. "The effects of changes in the regulation of the Colombian wholesale electricity market in a structural model of complex auctions," Borradores de Economia 1211, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:1211
    DOI: 10.32468/be.1211
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    References listed on IDEAS

    as
    1. Frank A. Wolak, 2007. "Quantifying the supply-side benefits from forward contracting in wholesale electricity markets," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(7), pages 1179-1209.
    2. Petter Vegard Hansen, 2009. "Inflow Uncertainty in Hydropower Markets," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(1), pages 189-207, March.
    3. Jorge Balat & Juan E. Carranza & Juan D. Martin, 2015. "Dynamic and Strategic Behavior in Hydropower-Dominated Electricity Markets: Empirical Evidence for Colombia," Borradores de Economia 12906, Banco de la Republica.
    4. Álvaro Riascos, Miguel Bernal, Luciano de Castro and Shmuel Oren, 2016. "Transition to Centralized Unit Commitment An Econometric Analysis of Colombia's Experience," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    5. Mar Reguant, 2014. "Complementary Bidding Mechanisms and Startup Costs in Electricity Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(4), pages 1708-1742.
    6. Ennio Stacchetti, 1999. "Auction Design for the Colombian Electricity Market," Documentos de Trabajo 62, Centro de Economía Aplicada, Universidad de Chile.
    7. Frank Wolak, 2000. "An Empirical Analysis of the Impact of Hedge Contracts on Bidding Behavior in a Competitive Electricity Market," International Economic Journal, Taylor & Francis Journals, vol. 14(2), pages 1-39.
    8. Jakub Kastl, 2011. "Discrete Bids and Empirical Inference in Divisible Good Auctions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(3), pages 974-1014.
    9. Ali Hortaçsu & David McAdams, 2010. "Mechanism Choice and Strategic Bidding in Divisible Good Auctions: An Empirical Analysis of the Turkish Treasury Auction Market," Journal of Political Economy, University of Chicago Press, vol. 118(5), pages 833-865.
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    Cited by:

    1. Bergheimer, Stefan & Cantillon, Estelle & Reguant, Mar, 2023. "Price and quantity discovery without commitment," International Journal of Industrial Organization, Elsevier, vol. 90(C).
    2. David Rios & Alex Perez & Jaime Carabali & Luis Meneses, 2024. "Poder de mercado y eventos climáticos adversos en un mercado de electricidad hidro-dominado," Borradores de Economia 1266, Banco de la Republica de Colombia.

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    More about this item

    Keywords

    Auctions; structural estimation; electricity markets; subastas; estimación estructural; mercados de electricidad;
    All these keywords.

    JEL classification:

    • C57 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Econometrics of Games and Auctions
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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