Reliability and competitive electricity markets
Despite all of the talk about deregulation' of the electricity sector, a large number of non-market mechanisms have been imposed on emerging competitive wholesale and retail markets. These mechanisms include spot market price caps, operating reserve requirements, non-price rationing protocols, and administrative protocols for managing system emergencies. Many of these mechanisms have been carried over from the old regime of regulated monopoly and continue to be justified as necessary responses to market imperfections of various kinds and engineering requirements dictated by the special physical attributes of electric power networks. This paper seeks to bridge the gap between economists focused on designing competitive market mechanisms and engineers focused on the physical attributes and engineering requirements they perceive as being needed for operating a reliable electric power system. The paper starts by deriving the optimal prices and investment program when there are price-insensitive retail consumers, and their load serving entities can choose any level of rationing they prefer contingent on real time prices. It then examines the assumptions required for a competitive wholesale and retail market to achieve this optimal price and investment program. The paper analyses the implications of relaxing several of these assumptions. First, it analyzes the interrelationships between regulator-imposed price caps, capacity obligations, and system operator procurement, dispatch and compensation arrangements. It goes on to explore the implications of potential network collapses, the concomitant need for operating reserve requirements and whether market prices will provide incentives for investments consistent with these reserve requirement.
(This abstract was borrowed from another version of this item.)
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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 38 (2007)
Issue (Month): 1 (03)
|Contact details of provider:|| Postal: 1776 Main Street, P.O. Box 2138, Santa Monica, California 90407-2138|
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0741-6261
More information through EDIRC
|Order Information:||Web: http://www.blackwellpublishing.com/journal.asp?ref=0741-6261|
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.:
- Chao, Hung-po & Wilson, Robert, 1987. "Priority Service: Pricing, Investment, and Market Organization," American Economic Review, American Economic Association, vol. 77(5), pages 899-916, December.
- Severin Borenstein & Stephen P. Holland, 2003.
"On the Efficiency of Competitive Electricity Markets With Time-Invariant Retail Prices,"
NBER Working Papers
9922, National Bureau of Economic Research, Inc.
- Severin Borenstein & Stephen Holland, 2005. "On the Efficiency of Competitive Electricity Markets with Time-Invariant Retail Prices," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 469-493, Autumn.
- Joskow, Paul & Tirole, Jean, 2004.
"Retail Electricity Competition,"
IDEI Working Papers
311, Institut d'Économie Industrielle (IDEI), Toulouse.
- Paul Joskow & Jean Tirole, 2004. "Retail Electricity Competition," Working Papers 0409, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- Jean Tirole & Paul Joskow, 2006. "Retail Electricity Competition," Post-Print hal-00173713, HAL.
- Joskow, P. & Tirole, J., 2004. "‘Retail Electricity Competition’," Cambridge Working Papers in Economics 0430, Faculty of Economics, University of Cambridge.
- Paul L. Joskow & Jean Tirole, 2004. "Retail Electricity Competition," NBER Working Papers 10473, National Bureau of Economic Research, Inc.
- Peter Cramton & Steven Stoft, 2005.
"A Capacity Market that Makes Sense,"
Papers of Peter Cramton
05licap, University of Maryland, Department of Economics - Peter Cramton, revised 2005.
- Littlechild, S.C., 2000. "Why We Need Electricity Retailers: A Reply to Joskow on Wholesale Spot Price pass-through," Cambridge Working Papers in Economics 0008, Faculty of Economics, University of Cambridge.
- Green, Richard, 1999. "The Electricity Contract Market in England and Wales," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 107-24, March.
- Allaz Blaise & Vila Jean-Luc, 1993. "Cournot Competition, Forward Markets and Efficiency," Journal of Economic Theory, Elsevier, vol. 59(1), pages 1-16, February.
- Frank Wolak, 2000. "An Empirical Analysis of the Impact of Hedge Contracts on Bidding Behavior in a Competitive Electricity Market," International Economic Journal, Taylor & Francis Journals, vol. 14(2), pages 1-39.
When requesting a correction, please mention this item's handle: RePEc:bla:randje:v:38:y:2007:i:1:p:60-84. 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: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
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.