Advanced Search
MyIDEAS: Login to save this paper or follow this series

Investment decisions in liberalized electricity markets: A framework of peak load pricing with strategic firms

Contents:

Author Info

  • ZOETTL, Gregor

Abstract

In this article we analyze firms investment incentives in liberalized electricity markets. Since electricity is economically non storable, it is optimal for firms to invest in a differentiated portfolio of technologies in order to serve strongly fluctuating demand. Prior to the Liberalization of electricity markets, for regulated monopolists, optimal investment and pricing strategies haven been analyzed in the peak load pricing literature (compare Crew and Kleindorder (1986)). In restructured electricity markets regulated monopolistic generators have often been replaced by competing and potentially strategic firms. This article aims to respond to the changed reality and model investment decisions of strategic firms in those markets. We derive equilibrium investment for strategic firms and compare to the benchmark cases of perfect competition and monopoly outcomes. We find that strategic firms have an incentive to overinvest in base-load technologies but choose total capacities too low from a welfare point of view. By fitting the framework to a specific electricity market (Germany) we are able to empirically analyze Investment choices of strategic firms, and quantify the potential for market power and its impact on generation portfolios in restructured electricity markets in the long run.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.uclouvain.be/cps/ucl/doc/core/documents/coredp2008_41.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2008041.

as in new window
Length:
Date of creation: 01 Jul 2008
Date of revision:
Handle: RePEc:cor:louvco:2008041

Contact details of provider:
Postal: Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium)
Phone: 32(10)474321
Fax: +32 10474304
Email:
Web page: http://www.uclouvain.be/core
More information through EDIRC

Related research

Keywords: Investment decisions; technology choice; restructured electricity markets; peak load pricing; strategic firms.;

Other versions of this item:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Joskow, P. & Tirole, J., 2004. "Reliability and Competitive Electricity Markets," Cambridge Working Papers in Economics 0450, Faculty of Economics, University of Cambridge.
  2. Veronika Grimm & Gregor Zoettl, 2006. "Capacity Choice under Uncertainty: The Impact of Market Structure," Working Paper Series in Economics 23, University of Cologne, Department of Economics.
  3. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Sakellaris, Kostis, 2010. "Modeling Electricity Markets as Two-Stage Capacity Constrained Price Competition Games under Uncertainty," MPRA Paper 23317, University Library of Munich, Germany.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cor:louvco:2008041. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alain GILLIS).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.