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Retail Competition and Electricity Contracts

Author

Listed:
  • Green, R.

Abstract

Long-term contracts for electricity can counter market power and reduce prices in short-term markets. If electricity retailers face competition, however, companies signing long-term contracts are exposed to the risk that a fall in short-term prices would allow rivals to buy on the spot market and undercut them. Could this lead to less contracting and higher prices? This paper combines a model of electricity retailing and a Cournot model of competition in the wholesale markets to estimate the size of this effect, and finds that it could raise wholesale prices by two or three percent.

Suggested Citation

  • Green, R., 2004. "Retail Competition and Electricity Contracts," Cambridge Working Papers in Economics 0406, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:0406
    Note: CMI33, IO
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    File URL: http://www.econ.cam.ac.uk/electricity/publications/wp/ep33.pdf
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    Keywords

    Electricity; contract markets; retail competition;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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