Using Forward Markets to Improve Electricity Market Design
AbstractForward markets, both medium term and long term, complement the spot market for wholesale electricity. The forward markets reduce risk, mitigate market power, and coordinate new investment. In the medium term, a forward energy market lets suppliers and demanders lock in energy prices and quantities for one to three years. In the long term, a forward reliability market assures adequate resources are available when they are needed most. The forward markets reduce risk for both sides of the market, since they reduce the quantity of energy that trades at the more volatile spot price. Spot market power is mitigated by putting suppliers and demanders in a more balanced position at the time of the spot market. The markets also reduce transaction costs and improve liquidity and transparency. Recent innovations to the Colombia market illustrate the basic elements of the forward markets and their beneficial role.
Download InfoIf 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.
Bibliographic InfoPaper provided by University of Maryland, Department of Economics - Peter Cramton in its series Papers of Peter Cramton with number 09ufm.
Length: 11 pages
Date of creation: 2009
Date of revision: 2009
Publication status: Published in Utilities Policy, 18, 195-200, 2010
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
Auctions; electricity auctions; market design; forward markets;
Other versions of this item:
- Ausubel, Lawrence M. & Cramton, Peter, 2010. "Using forward markets to improve electricity market design," Utilities Policy, Elsevier, vol. 18(4), pages 195-200, December.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-01-23 (All new papers)
- NEP-ENE-2010-01-23 (Energy Economics)
- NEP-MIC-2010-01-23 (Microeconomics)
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.:
- Peter Cramton & Steven Stoft, 2008.
"Forward Reliability Markets: Less Risk, Less Market Power, More Efficiency,"
Papers of Peter Cramton
08frm, University of Maryland, Department of Economics - Peter Cramton, revised 2008.
- Cramton, Peter & Stoft, Steven, 2008. "Forward reliability markets: Less risk, less market power, more efficiency," Utilities Policy, Elsevier, vol. 16(3), pages 194-201, September.
- Peter Cramton & Steven Stoft & Jeffrey West, 2006. "Simulation of the Colombian Firm Energy Market," Papers of Peter Cramton 06scfem, University of Maryland, Department of Economics - Peter Cramton, revised 2006.
- Peter Cramton, 2007. "Colombia’s Forward Energy Market," Papers of Peter Cramton 07fem, University of Maryland, Department of Economics - Peter Cramton, revised 2007.
- Peter Cramton & Steven Stoft, 2006. "The Convergence of Market Designs for Adequate Generating Capacity," Papers of Peter Cramton 06mdfra, University of Maryland, Department of Economics - Peter Cramton, revised 2006.
- Oren, Shmuel S., 2005. "Generation Adequacy via Call Options Obligations: Safe Passage to the Promised Land," The Electricity Journal, Elsevier, vol. 18(9), pages 28-42, November.
- Lawrence M. Ausubel & Peter Cramton, 2004.
"Auctioning Many Divisible Goods,"
Journal of the European Economic Association,
MIT Press, vol. 2(2-3), pages 480-493, 04/05.
- Peter Cramton & Steven Stoft, 2007. "Colombia Firm Energy Market," Papers of Peter Cramton 07cfem, University of Maryland, Department of Economics - Peter Cramton, revised 2007.
- Arango, Santiago & Larsen, Erik, 2011. "Cycles in deregulated electricity markets: Empirical evidence from two decades," Energy Policy, Elsevier, vol. 39(5), pages 2457-2466, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Cramton).
If references are entirely missing, you can add them using this form.