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A Unique Competitive Equilibrium on Interdependent Spot Electricity and Reserve Capacity Markets

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  • Richter, Jan

    ()
    (Energiewirtschaftliches Institut an der Universitaet zu Koeln)

Abstract

This paper studies the interdependency of a spot electricity market and a market for incremental reserve capacity in a competitive setting, where a continuum of firms supplies both markets. It is proved that a simultaneous competitive equilibrium on both markets exists in the stylised model used. It turns out that all market equilibria are characterised essentially by a u-shaped reserve capacity market bidding function and that the set of suppliers declaring reserve capacity constitutes an interval. If the supplier’s marginal cost curve is convex, then a unique equilibrium exists.

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Bibliographic Info

Paper provided by Energiewirtschaftliches Institut an der Universitaet zu Koeln in its series EWI Working Papers with number 2011-9.

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Length: 22 pages
Date of creation: 23 Aug 2011
Date of revision:
Handle: RePEc:ris:ewikln:2011_009

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Keywords: Competitive Equilibrium; Electricity; Reserve Capacity; Simultaneous Equilibrium;

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  1. Chao, Hung-Po & Wilson, Robert, 2002. "Multi-dimensional Procurement Auctions for Power Reserves: Robust Incentive-Compatible Scoring and Settlement Rules," Journal of Regulatory Economics, Springer, vol. 22(2), pages 161-83, September.
  2. Green, Richard & Newbery, David M G, 1991. "Competition in the British Electricity Spot Market," CEPR Discussion Papers 557, C.E.P.R. Discussion Papers.
  3. Just, Sebastian & Weber, Christoph, 2008. "Pricing of reserves: Valuing system reserve capacity against spot prices in electricity markets," Energy Economics, Elsevier, vol. 30(6), pages 3198-3221, November.
  4. Felix Müsgens, 2006. "QUANTIFYING MARKET POWER IN THE GERMAN WHOLESALE ELECTRICITY MARKET USING A DYNAMIC MULTI-REGIONAL DISPATCH MODEL -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 54(4), pages 471-498, December.
  5. Ali Hortaçsu & Steven L. Puller, 2008. "Understanding strategic bidding in multi-unit auctions: a case study of the Texas electricity spot market," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 86-114.
  6. Anna Creti & Natalia Fabra, 2003. "Capacity Markets for Electricity," Industrial Organization 0309002, EconWPA, revised 26 Nov 2003.
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