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Diagnosing and Mitigating Market Power in Chile’s Electricity Industry

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  • Arellano, M.S.
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    Abstract

    This paper examines generators’ incentives to exercise market power and the strategies they would follow if all electricity supplies were traded in an hourly-unregulated spot market. The industry is modelled as a Cournot duopoly with a competitive fringe; particular care is given to the hydro scheduling decision. Quantitative simulations of generators’ strategic behaviour indicate that the largest (Endesa) would have the incentive and power to act unilaterally. It would schedule its hydro resources to take advantage of differences in price electricity: too little supply in high demand periods and too much in low demand periods. Two market power mitigation measures are analysed: requiring Endesa to divest some of its generating capacity, and fixed price forward contracts for dominant generators. Conditions for the development of a voluntary contract market are analysed, as it is not practical to rely permanently on vesting contracts imposed for the transition period.

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    File URL: http://www.econ.cam.ac.uk/electricity/publications/wp/ep27.pdf
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    Bibliographic Info

    Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0327.

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    Length: 82
    Date of creation: May 2003
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    Handle: RePEc:cam:camdae:0327

    Note: CMI27, IO
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    Web page: http://www.econ.cam.ac.uk/index.htm

    Related research

    Keywords: electricity utilities; market power; scheduling hydro-reservoirs; contracts; Chile’s electricity industry;

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    1. Donatos, George S. & Mergos, George J., 1991. "Residential demand for electricity: The case of Greece," Energy Economics, Elsevier, vol. 13(1), pages 41-47, January.
    2. Severin Borenstein & James Bushnell & Christopher R. Knittel, 1999. "Market Power in Electricity Markets: Beyond Concentration Measures," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 65-88.
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