Game-theoretical, Strategic forward Contracting in the Electricity Market
Forward sales is a credible commitment to aggressive spot market bidding, and it mitigates producers’ market power in electricity markets. Still it can be profitable for a producer to make such a commitment if it results in a soft response from competitors in the spot market (strategies are substitutes). The optimal contracting level of a risk-neutral producer is determined by the extent to which strategies are substitutes and the slope of the residual demand in the forward market. Conditions under which strategies are substitutes are identified for a two-stage game with supply function competition and capacity constrained producers.
|Date of creation:||24 Jun 2008|
|Date of revision:|
|Publication status:||Published as Holmberg, Pär, 'Strategic Forward Contracting in the Wholesale Electricity Market' in Energy Journal, 2011, pages 169-202.|
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