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The Impact of Wholesale Price Caps on Forward Contracting

Author

Listed:
  • David P. Brown
  • David E. M. Sappington

Abstract

Increasing (or eliminating) the caps on short-term wholesale prices is generally thought to promote long-term forward contracting for electricity. We find that a higher price cap typically enhances the incentives of electricity buyers (e.g., load-serving entities) to undertake forward contracting. However, a higher cap can diminish the incentives of electricity generators to engage in forward contracting. Consequently, higher wholesale price caps can reduce industry forward contracting. JEL Classification : L13, L51, L94

Suggested Citation

  • David P. Brown & David E. M. Sappington, 2025. "The Impact of Wholesale Price Caps on Forward Contracting," The Energy Journal, , vol. 46(4), pages 253-288, July.
    • Handle: RePEc:sae:enejou:v:46:y:2025:i:4:p:253-288
    DOI: 10.1177/01956574251329216
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    More about this item

    Keywords

    wholesale price caps; forward contracting; electricity markets;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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