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Incentive based energy market design

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  • Muratore, Gabriella

Abstract

Current energy market designs and pricing schemes fail to give investors the appropriate market signals. In particular, energy prices are not high enough to attract investors to build new or maintain existing power capacity. In this paper we propose a method to compute second-best Pareto optimal equilibrium prices for any market exhibiting non-convexities and, based on this result, an energy market design able to restore the correct energy price signals for supply investors.

Suggested Citation

  • Muratore, Gabriella, 2011. "Incentive based energy market design," European Journal of Operational Research, Elsevier, vol. 213(2), pages 422-429, September.
  • Handle: RePEc:eee:ejores:v:213:y:2011:i:2:p:422-429
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    References listed on IDEAS

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    1. Paul Joskow & Jean Tirole, 2007. "Reliability and competitive electricity markets," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 60-84, March.
    2. H. R. Edwards, 1955. "Price Formation In Manufacturing Industry And Excess Capacity," Oxford Economic Papers, Oxford University Press, vol. 0(1), pages 94-118.
    3. H. F. Lydall, 1955. "Conditions Of New Entry And The Theory Of Price," Oxford Economic Papers, Oxford University Press, vol. 0(3), pages 300-311.
    4. 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.
    5. F. H. Hahn, 1955. "Excess Capacity And Imperfect Competition," Oxford Economic Papers, Oxford University Press, vol. 0(3), pages 229-240.
    6. M. E. Paul, 1954. "Notes On Excess Capacity," Oxford Economic Papers, Oxford University Press, vol. 6(1), pages 33-40.
    7. J. R. Hicks, 1954. "The Process Of Imperfect Competition," Oxford Economic Papers, Oxford University Press, vol. 6(1), pages 41-41.
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    Cited by:

    1. Ensthaler, Ludwig & Giebe, Thomas, 2014. "Bayesian optimal knapsack procurement," European Journal of Operational Research, Elsevier, vol. 234(3), pages 774-779.

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