We present a simulation analysis of the proposed Colombian firm energy market. The main purpose of the simulation is to assess the risk to suppliers of participation in the market. We also are able to consider variations in the market design, and assess the impact of alternative auction parameters. Three simulation models are developed and analyzed. The first model (Model 1) uses historical price data from October 1995 through May 2006 to assess the performance risk of hypothetical thermal and hydro generating units. The second model (Model 2) uses historical price and operating data to assess performance risk of the actual generating units in Colombia over the same period. This analysis allows us to assess company risk. The third model (Model 3) differs from the other models in that it explicitly models the firm energy auction and investments going forward. Thus, the model is able to assess how the distribution of firm energy purchases differs from the firm energy target, and how this distribution depends on the firm energy demand curve. Model 3 also studies the investment decisions of suppliers, the impact of lumpy investments, and the impact of a higher scarcity price. Taken together, the simulation results demonstrate the risk reducing benefits of the firm energy market. Provided there is competitive new entry in response to load growth, the firm energy market should work well at coordinating investment in new supply, while minimizing supplier and consumer risks.
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Publisher Info
Paper provided by University of Maryland, Department of Economics - Peter Cramton in its series Papers of Peter Cramton with number
06scfem.
Length: 51 pages Date of creation: 2006 Date of revision:
2006 Publication status: Published in Working Paper, University of Maryland, December 2006 Handle: RePEc:pcc:pccumd:06scfem
Contact details of provider: Postal: Economics Department, University of Maryland, College Park, MD 20742-7211 Phone: (202) 318-0520 Fax: (202) 318-0520 Web page: http://www.cramton.umd.edu
For technical questions regarding this item, or to correct its listing, contact: (Peter Cramton).