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Generators' bidding behavior in the NYISO day-ahead wholesale electricity market

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  • Zhang, Ning

Abstract

This paper proposes a statistical and econometric model to analyze the generators' bidding behavior in the NYISO day-ahead wholesale electricity market. The generator level bidding data show very strong persistence in generators' grouping choices over time. Using dynamic random effect ordered probit model, we find that persistence is characterized by positive state dependence and unobserved heterogeneity and state dependence is more important than unobserved heterogeneity. The finding of true state dependence suggests a scope for economic policy intervention. If NYISO can implement an effective policy to switch generators from higher price groups to lower price groups, the effect is likely to be lasting. As a result, the market price can be lowered in the long-run. Generators' offered capacity is estimated by a two-stage sample selection model. The estimated results show that generators in higher-priced groups tend to withhold their capacity strategically to push up market prices. It further confirms the importance of an effective policy to turn generators into lower price groups in order to mitigate unexpected price spikes. The simulated market prices based on our estimated aggregate supply curve can replicate most volatility of actual DA market prices. Applying our models to different demand assumptions, we find that demand conditions can affect market prices significantly. It validates the importance of introducing demand side management during the restructure of electricity industry.

Suggested Citation

  • Zhang, Ning, 2009. "Generators' bidding behavior in the NYISO day-ahead wholesale electricity market," Energy Economics, Elsevier, vol. 31(6), pages 897-913, November.
  • Handle: RePEc:eee:eneeco:v:31:y:2009:i:6:p:897-913
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    Cited by:

    1. Clements, A.E. & Hurn, A.S. & Li, Z., 2016. "Strategic bidding and rebidding in electricity markets," Energy Economics, Elsevier, vol. 59(C), pages 24-36.
    2. Li, Gong & Shi, Jing & Qu, Xiuli, 2011. "Modeling methods for GenCo bidding strategy optimization in the liberalized electricity spot market–A state-of-the-art review," Energy, Elsevier, vol. 36(8), pages 4686-4700.
    3. Sirin, Selahattin Murat & Camadan, Ercument & Erten, Ibrahim Etem & Zhang, Alex Hongliang, 2023. "Market failure or politics? Understanding the motives behind regulatory actions to address surging electricity prices," Energy Policy, Elsevier, vol. 180(C).
    4. Malliaris, A.G. & Kyrtsou, C., 2009. "Editorial introduction of the special issue: "Energy sector pricing and macroeconomic dynamics"," Energy Economics, Elsevier, vol. 31(6), pages 825-826, November.
    5. John Kwoka & Vladlena Sabodash, 2011. "Price Spikes in Energy Markets: “Business by Usual Methods” or Strategic Withholding?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(3), pages 285-310, May.

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