Investment in Electricity Markets with Asymmetric Technologies
We study competition between hydro and thermal electricity generators under demand uncertainty. Producers compete in quantities and each is constrained: the thermal generator by capacity and the hydro generator by water availability. We analyze a two-period game emphasizing the incentives for capacity investments by the thermal generator. We characterize both Markov perfect and open-loop equilibria. In the Markov perfect equilibrium, investment is discontinuous in initial capacity and higher than it is in the open-loop equilibrium. However, since there are two distortions in the model, equilibrium investment can be either higher or lower than the efficient investment.
|Date of creation:||2009|
|Contact details of provider:|| Postal: Guelph, Ontario, N1G 2W1|
Phone: (519) 824-4120 ext. 53898
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Web page: https://www.uoguelph.ca/economics/
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- Genc, Talat S. & Reynolds, Stanley S. & Sen, Suvrajeet, 2007. "Dynamic oligopolistic games under uncertainty: A stochastic programming approach," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 55-80, January.
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- Bushnell, James & Wolfram, Catherine, 2008. "Electricity Markets," Staff General Research Papers Archive 31547, Iowa State University, Department of Economics.
- Peter Cramton & Steven Stoft, 2006. "The Convergence of Market Designs for Adequate Generating Capacity," Papers of Peter Cramton 06mdfra, University of Maryland, Department of Economics - Peter Cramton, revised 2006.
- Garcia, Alfredo & Reitzes, James D & Stacchetti, Ennio, 2001. "Strategic Pricing when Electricity is Storable," Journal of Regulatory Economics, Springer, vol. 20(3), pages 223-247, November.
- Reynolds, Stanley S, 1986. "Strategic Capital Investment in the American Aluminum Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 34(3), pages 225-245, March.
- Crampes, C. & Moreaux, M., 2001. "Water resource and power generation," International Journal of Industrial Organization, Elsevier, vol. 19(6), pages 975-997, May.
- Stefan Ambec & Joseph Doucet, 2003. "Decentralizing hydro power production," Canadian Journal of Economics, Canadian Economics Association, vol. 36(3), pages 587-607, August.
- Genc, Talat S. & Sen, Suvrajeet, 2008. "An analysis of capacity and price trajectories for the Ontario electricity market using dynamic Nash equilibrium under uncertainty," Energy Economics, Elsevier, vol. 30(1), pages 173-191, January.
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