Vertical Structure and Forward Contract in Electricity Market
AbstractThe pro-competitive effects of forward contracts in electricity market can- not be regarded alone without examining the market structure. In this paper, we show that under retail competition, spot market demand uncertainty and risk aversion, partially or fully integrated electricity generators and retailers have less incentives to be involved in trading electricity under forward con- tracts. Therefore, the effect of market power mitigation of forward contracts is countered by this vertical relationship between retailers and generators since it provides a natural hedging device as a substitute of forward contracts to the retailers. Both analytic framework and numerical simulation suggest that the optimal quantity of forward sales decreases and spot price increases with the degree of vertical control of retailers over generators' assets. We thus conclude that the retailers' ownership over generators' proffts could give rise to generators exercising market power in electricity spot market.
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Bibliographic InfoPaper provided by Department of Research, Ipag Business School in its series Working Papers with number 2014-117.
Length: 28 pages
Date of creation: 25 Feb 2014
Date of revision:
Other versions of this item:
- Yuanjing LI, 2013. "Vertical Structure and Forward Contract in Electricity Markets," Working Papers 2013-018, Department of Research, Ipag Business School.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-03-15 (All new papers)
- NEP-COM-2014-03-15 (Industrial Competition)
- NEP-ENE-2014-03-15 (Energy Economics)
- NEP-IND-2014-03-15 (Industrial Organization)
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.:
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