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Capacity choices in liberalised electricity markets

  • Castro-Rodriguez, Fidel
  • Marín, Pedro L.
  • Siotis, Georges

This paper addresses the issue of investment in electricity generation in the context of a liberalised market. We use the main results derived from a theoretical model where firms invest strategically to simulate the Spanish electricity system with real-world data. Our results indicate that, under reasonable parameter constellations regarding the number of agents, the level of capacity resulting from private decisions falls well short of the social optimum. Last, we show that two regulatory mechanisms that have been used to generate additional incentives for private agents to install capacity (capacity payment and price-adder) are ineffective and/or prohibitively costly.

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File URL: http://www.sciencedirect.com/science/article/pii/S0301-4215(09)00078-0
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Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 37 (2009)
Issue (Month): 7 (July)
Pages: 2574-2581

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Handle: RePEc:eee:enepol:v:37:y:2009:i:7:p:2574-2581
Contact details of provider: Web page: http://www.elsevier.com/locate/enpol

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  1. GABSZEWICZ, Jean J. & PODDAR , Sougata, 1995. "Demand Fluctuations and Capacity Utilization under Duopoly," CORE Discussion Papers 1995051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Veronika Grimm & Gregor Zoettl, 2006. "Capacity Choice under Uncertainty: The Impact of Market Structure," Working Paper Series in Economics 23, University of Cologne, Department of Economics.
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