End user prices in liberalised energy markets
As European energy markets move towards deregulation, energy prices shift from classic â€˜cost plus' prices towards market prices. Read also the accompanying press release . We develop a model for the retail and wholesale energy markets in Europe, based on Bertrand competition in a two part pricing structure with switching costs. We use the model to forecast end user electricity and natural gas prices and find that the introduction of competition in energy retail and wholesale markets will decrease standing charges, lowering total costs for energy users. A larger number of entrants, a cost advantage for one of the suppliers, or lower switching costs reduces standing charges further.
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