IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Diagnosing and Mitigating Market Power in Chile's Electricity Industry

  • M. Soledad Arellano
Registered author(s):

    This paper examines the incentives to exercise market power that generators would face and the different strategies that they would follow if all electricity supplies in Chile were traded in an hourly-unregulated spot market. The industry is modeled as a Cournot duopoly with a competitive fringe; particular care is given to the hydro scheduling decision. Quantitative simulations of the strategic behavior of generators indicate that the largest generator (”Endesa”) would have the incentive and ability to exercise market power unilaterally. It would do so by scheduling its hydro resources, which are shown to be the real source of its market power, in order to take advantage of differences in price elasticity, too little supply to high demand periods and too much to low demand periods. The following market power mitigation measures are also analyzed, (a) requiring Endesa to divest some of its generating capacity to create more competitors and (b) requiring the dominant generators to enter into fixed price forward contracts for power covering a large share of their generating capacity. Splitting the largest producer in two or more smaller firms turns the market equilibrium closer to the competitive equilibrium as divested plants are more intensely used. Contracting practices proved to be an effective tool to prevent large producers from exercising market power in the spot market. In addition, a more efficient hydro scheduling resulted. Conditions for the development of a voluntary contract market are analyzed, as it is not practical to rely permanently on vesting contracts imposed for the transition period.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://tisiphone.mit.edu/RePEc/mee/wpaper/2003-010.pdf
    Our checks indicate that this address may not be valid because: 500 Can't connect to tisiphone.mit.edu:80 (10060). If this is indeed the case, please notify (Sharmila Ganguly)


    Download Restriction: no

    Paper provided by Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research in its series Working Papers with number 0310.

    as
    in new window

    Length:
    Date of creation: May 2003
    Date of revision:
    Handle: RePEc:mee:wpaper:0310
    Contact details of provider: Postal: 77 Massachusetts Ave. (Building E40-279), Cambridge, MA 02139-4307
    Phone: (617) 253-3551
    Fax: (617) 253-9845
    Web page: http://tisiphone.mit.edu/RePEcEmail:


    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:mee:wpaper:0310. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sharmila Ganguly)

    The email address of this maintainer does not seem to be valid anymore. Please ask Sharmila Ganguly to update the entry or send us the correct address

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.