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Retail Competition and Electricity Contracts

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Author Info
Green, R.

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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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Publisher 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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Related research
Keywords: Electricity; contract markets; retail competition;

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Find related papers by JEL classification:
L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

This paper has been announced in the following NEP Reports:

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  1. 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. [Downloadable!]
  2. Machiel Mulder & Victoria Shestalova & Marc Lijesen, 2005. "Vertical separation of the energy-distribution industry," CPB Documents 84, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  3. Anette Boom, 2007. "Vertically Integrated Firms' Investments in Electricity Generating Capacities," CIE Discussion Papers 2007-14, University of Copenhagen. Department of Economics. Centre for Industrial Economics. [Downloadable!]
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This page was last updated on 2009-11-16.


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