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Retail Competition and Electricity Contracts

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  • Green, R.

Abstract

Long-term contracts for electricity can counter market power and reduce prices in short-term markets. If electricity retailers face competition, however, companies signing long-term contracts are exposed to the risk that a fall in short-term prices would allow rivals to buy on the spot market and undercut them. Could this lead to less contracting and higher prices? This paper combines a model of electricity retailing and a Cournot model of competition in the wholesale markets to estimate the size of this effect, and finds that it could raise wholesale prices by two or three percent.

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File URL: http://www.econ.cam.ac.uk/electricity/publications/wp/ep33.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 0406.

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Length: 18
Date of creation: Jan 2004
Date of revision:
Handle: RePEc:cam:camdae:0406

Note: CMI33, IO
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Web page: http://www.econ.cam.ac.uk/index.htm

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Keywords: Electricity; contract markets; retail competition;

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Cited by:
  1. Christian Huveneers, 2005. "Working Paper 09-05 - Réforme du marché de l’électricité en Belgique. Leçons de l’Espagne, de l’Allemagne et de la Grande-Bretagne," Working Papers 0509, Federal Planning Bureau, Belgium.
  2. Neuhoff, Karsten & De Vries, Laurens, 2004. "Insufficient incentives for investment in electricity generations," Utilities Policy, Elsevier, vol. 12(4), pages 253-267, December.
  3. Roques, F. & Newbery, D.M. & Nuttall, W.J., 2004. "Generation Adequacy and Investment Incentives in Britain: from the Pool to NETA," Cambridge Working Papers in Economics 0459, Faculty of Economics, University of Cambridge.
  4. SMEERS, Yves, 2005. "How well can one measure market power in restructured electricity systems ?," CORE Discussion Papers 2005050, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Machiel Mulder & Victoria Shestalova & Mark Lijesen, 2005. "Vertical separation of the energy-distribution industry; an assessment of several options for unbundling," CPB Document 84, CPB Netherlands Bureau for Economic Policy Analysis.
  6. Creti, Anna & Villeneuve, Bertrand, 2004. "Long-term contracts and take-or-pay clauses in natural gas Markets," Open Access publications from Université Paris-Dauphine urn:hdl:123456789/5372, Université Paris-Dauphine.
  7. Scholz, Sebastian, 2010. "Derivatives and Default Risk," Discussion Papers in Economics 11317, University of Munich, Department of Economics.
  8. Roques, Fabien A. & Newbery, David M. & Nuttall, William J., 2008. "Fuel mix diversification incentives in liberalized electricity markets: A Mean-Variance Portfolio theory approach," Energy Economics, Elsevier, vol. 30(4), pages 1831-1849, July.
  9. Muñoz, José Ignacio & Sánchez de la Nieta, Agustín A. & Contreras, Javier & Bernal-Agustín, José L., 2009. "Optimal investment portfolio in renewable energy: The Spanish case," Energy Policy, Elsevier, vol. 37(12), pages 5273-5284, December.

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