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Impact of some parameters on investments in oligopolistic electricity markets

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  • Pineau, Pierre-Olivier
  • Rasata, Hasina
  • Zaccour, Georges

Abstract

It is seldom the case that one has the opportunity to compare investments as projected by a long-term multi-period model to what is eventually realized in practice. Further, although sensitivity analysis is of common use in any optimization setting, the impact of some parameters on strategic investments is not yet fully assessed in the context of the deregulated electricity industry. Starting with a benchmark model of the Finnish industry, we precisely explore the impact on equilibrium investments of varying such parameters as direct- and cross-price elasticities, length of the planning horizon and the depreciation rate of capacity. We run the model with different parameter values and compare the predicted equilibrium with what companies have actually done. The model is a stochastic dynamic game involving three players and played over a ten-year period. Our results show the depreciation rate and the planning horizon have a notable effect on investment levels, whereas price elasticities seem to play a lesser role. Although the model's results are rather well aligned to total industry investments, it diverges from individual levels. This may be due to the cost parameter used and/or to the open-loop information structure adopted in the computations. In any event, these results should be of methodological and practical interest to scholars and practitioners involved in strategic investment in the electricity industry.

Suggested Citation

  • Pineau, Pierre-Olivier & Rasata, Hasina & Zaccour, Georges, 2011. "Impact of some parameters on investments in oligopolistic electricity markets," European Journal of Operational Research, Elsevier, vol. 213(1), pages 180-195, August.
  • Handle: RePEc:eee:ejores:v:213:y:2011:i:1:p:180-195
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Parilina, Elena & Sedakov, Artem & Zaccour, Georges, 2017. "Price of anarchy in a linear-state stochastic dynamic game," European Journal of Operational Research, Elsevier, vol. 258(2), pages 790-800.
    2. Esmaili, Masoud & Shayanfar, Heidar Ali & Moslemi, Ramin, 2014. "Locating series FACTS devices for multi-objective congestion management improving voltage and transient stability," European Journal of Operational Research, Elsevier, vol. 236(2), pages 763-773.
    3. Filomena, Tiago Pascoal & Campos-Náñez, Enrique & Duffey, Michael Robert, 2014. "Technology selection and capacity investment under uncertainty," European Journal of Operational Research, Elsevier, vol. 232(1), pages 125-136.
    4. repec:eee:ejores:v:269:y:2018:i:2:p:661-681 is not listed on IDEAS
    5. repec:eee:ejores:v:267:y:2018:i:3:p:1039-1050 is not listed on IDEAS
    6. repec:spr:joptap:v:175:y:2017:i:1:d:10.1007_s10957-017-1148-6 is not listed on IDEAS
    7. Genc, Talat S. & De Giovanni, Pietro, 2018. "Optimal return and rebate mechanism in a closed-loop supply chain game," European Journal of Operational Research, Elsevier, vol. 269(2), pages 661-681.
    8. Schröder, Andreas, 2012. "An Electricity Market Model with Generation Capacity Investment under Uncertainty," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62068, Verein für Socialpolitik / German Economic Association.
    9. Miguel Pérez de Arce and Enzo Sauma, 2016. "Comparison of Incentive Policies for Renewable Energy in an Oligopolistic Market with Price-Responsive Demand," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).

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