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Investment in electricity markets with asymmetric technologies

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  • Genc, Talat S.
  • Thille, Henry

Abstract

Capacity investments in electricity markets is one of the main issues in the restructuring process to ensure competition and enhance system security of networks. We study competition between hydro and thermal electricity generators under demand uncertainty. Producers compete in quantities and each is constrained: the thermal generator by capacity and the hydro generator by water availability. We analyze a two-period game emphasizing the incentives for capacity investments by the thermal generator. We characterize both Markov perfect and open-loop equilibria. In the Markov perfect equilibrium, investment is discontinuous in initial capacity and higher than it is in the open-loop equilibrium. However, since there are two distortions in the model, equilibrium investment can be either higher or lower than the efficient investment.

Suggested Citation

  • Genc, Talat S. & Thille, Henry, 2011. "Investment in electricity markets with asymmetric technologies," Energy Economics, Elsevier, vol. 33(3), pages 379-387, May.
  • Handle: RePEc:eee:eneeco:v:33:y:2011:i:3:p:379-387
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    References listed on IDEAS

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    1. Genc, Talat S. & Reynolds, Stanley S. & Sen, Suvrajeet, 2007. "Dynamic oligopolistic games under uncertainty: A stochastic programming approach," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 55-80, January.
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    Cited by:

    1. Arnold Rubén Rivasplata Ramírez & Raúl Lizardo García Carpio, 2018. "Dinámica de inversión y competencia en generación eléctrica en un escenario de liberalización en el Perú: La importancia de los contratos de largo plazo," Documentos de Trabajo / Working Papers 2018-457, Departamento de Economía - Pontificia Universidad Católica del Perú.
    2. Lamadrid, Alberto J. & Maneevitjit, Surin & Mount, Timothy D., 2016. "The economic value of transmission lines and the implications for planning models," Energy Economics, Elsevier, vol. 57(C), pages 1-15.
    3. Robles, Jack, 2016. "Infinite horizon hydroelectricity games," Working Paper Series 5075, Victoria University of Wellington, School of Economics and Finance.
    4. Liebensteiner, Mario & Wrienz, Matthias, 2020. "Do Intermittent Renewables Threaten the Electricity Supply Security?," Energy Economics, Elsevier, vol. 87(C).
    5. de Frutos Cachorro, J. & Willeghems, G. & Buysse, J., 2019. "Strategic investment decisions under the nuclear power debate in Belgium," Resource and Energy Economics, Elsevier, vol. 57(C), pages 156-184.
    6. Genc, Talat S. & Thille, Henry & ElMawazini, Khaled, 2020. "Dynamic competition in electricity markets under uncertainty," Energy Economics, Elsevier, vol. 90(C).
    7. de Frutos Cachorro, Julia & Willeghems, Gwen & Buysse, Jeroen, 2020. "Exploring investment potential in a context of nuclear phase-out uncertainty: Perfect vs. imperfect electricity markets," Energy Policy, Elsevier, vol. 144(C).
    8. Moita, Rodrigo Menon Simões & Monte, Daniel, 2017. "Competition in cascades," Textos para discussão 456, FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil).
    9. Pineda, Salvador & Boomsma, Trine K. & Wogrin, Sonja, 2018. "Renewable generation expansion under different support schemes: A stochastic equilibrium approach," European Journal of Operational Research, Elsevier, vol. 266(3), pages 1086-1099.

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    More about this item

    Keywords

    Electricity markets Dynamic game Duopoly Capacity investment;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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