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Network-constrained models of liberalized electricity markets: the devil is in the details

  • Barquin, J.
  • Boots,M. G.
  • Ehrenmann, A.
  • Hobbs, B.F.
  • Neuhoff, K.
  • Rijkers, F. A. M.

Numerical models for electricity markets are frequently used to inform and support decisions. How robust are the results? Three research groups used the same, realistic data set for generators, demand and transmission network as input for their numerical models. The results coincide when predicting competitive market results. In the strategic case in which large generators can exercise market power, the predicted prices differed significantly. The results are highly sensitive to assumptions about market design, timing of the market and assumptions about constraints on the rationality of generators. Given the same assumptions the results coincide. We provide a checklist for users to understand the implications of different modelling assumptions.

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File URL: http://www.econ.cam.ac.uk/electricity/publications/wp/ep32.pdf
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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0405.

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Length: 34
Date of creation: Jan 2004
Date of revision:
Handle: RePEc:cam:camdae:0405
Note: CMI32, IO
Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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  1. Cardell, Judith B. & Hitt, Carrie Cullen & Hogan, William W., 1997. "Market power and strategic interaction in electricity networks," Resource and Energy Economics, Elsevier, vol. 19(1-2), pages 109-137, March.
  2. Severin Borenstein & James B. Bushnell & Frank A. Wolak, 2002. "Measuring Market Inefficiencies in California's Restructured Wholesale Electricity Market," American Economic Review, American Economic Association, vol. 92(5), pages 1376-1405, December.
  3. Bushnell, James, 2005. "Looking for Trouble: Competition Policy in the U.S. Electricity Industry," Staff General Research Papers 13140, Iowa State University, Department of Economics.
  4. Chao, Hung-Po & Peck, Stephen, 1996. "A Market Mechanism for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 10(1), pages 25-59, July.
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