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A novel approach for modeling deregulated electricity markets

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  • Rubin, Ofir D.
  • Babcock, Bruce A.

Abstract

The theoretical framework developed in this study allows development of a model of deregulated electricity markets that explains two familiar empirical findings; the existence of forward premiums and price-cost markups in the spot market. This is a significant contribution because electricity forward premiums have been previously explained exclusively by the assumptions of perfect competition and risk-averse behavior while spot markups are generally the outcome of a body of literature assuming oligopolistic competition. Our theoretical framework indicates that a certain premium for forward contracting is required for efficient allocation of generation capacity. However, due to the uniqueness of electricity and the design of deregulated electricity markets this premium might be substantially higher than its optimal level.

Suggested Citation

  • Rubin, Ofir D. & Babcock, Bruce A., 2011. "A novel approach for modeling deregulated electricity markets," Energy Policy, Elsevier, vol. 39(5), pages 2711-2721, May.
  • Handle: RePEc:eee:enepol:v:39:y:2011:i:5:p:2711-2721
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    Cited by:

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    2. Rubin, Ofir D. & Babcock, Bruce A., 2013. "The impact of expansion of wind power capacity and pricing methods on the efficiency of deregulated electricity markets," Energy, Elsevier, vol. 59(C), pages 676-688.
    3. Pappachen, Abhijith & Peer Fathima, A., 2017. "Critical research areas on load frequency control issues in a deregulated power system: A state-of-the-art-of-review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 72(C), pages 163-177.
    4. Ben-Moshe, Ori & Rubin, Ofir D., 2015. "Does wind energy mitigate market power in deregulated electricity markets?," Energy, Elsevier, vol. 85(C), pages 511-521.
    5. Oludamilare Bode Adewuyi & Mikaeel Ahmadi & Isaiah Opeyemi Olaniyi & Tomonobu Senjyu & Temitayo Olayemi Olowu & Paras Mandal, 2019. "Voltage Security-Constrained Optimal Generation Rescheduling for Available Transfer Capacity Enhancement in Deregulated Electricity Markets," Energies, MDPI, vol. 12(22), pages 1-16, November.
    6. Per B. Solibakke, 2022. "Step‐ahead spot price densities using daily synchronously reported prices and wind forecasts," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 41(1), pages 17-42, January.

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