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Did English Generators Play Cournot? Capacity withholding in the Electricity Pool

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  • Richard Green

Abstract

Electricity generators can raise the price of power by withholding their plant from the market. We discuss two ways in which this could have affected prices in the England and Wales Pool. Withholding low-cost capacity which should be generating will raise energy prices but make the pattern of generation less efficient. This pattern improved significantly after privatisation. Withholding capacity that was not expected to generate would raise the Capacity Payments based on spare capacity. On a multi-year basis, these did not usually exceed “competitive” levels, the cost of keeping stations open. The evidence for large-scale capacity withholding is weak.

Suggested Citation

  • Richard Green, 2004. "Did English Generators Play Cournot? Capacity withholding in the Electricity Pool," Working Papers 0410, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  • Handle: RePEc:mee:wpaper:0410
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    References listed on IDEAS

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    1. Paul Joskow & Jean Tirole, 2007. "Reliability and competitive electricity markets," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 60-84, March.
    2. Severin Borenstein & Stephen Holland, 2005. "On the Efficiency of Competitive Electricity Markets with Time-Invariant Retail Prices," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 469-493, Autumn.
    3. Jean-Charles Rochet & Lars A. Stole, 2002. "Nonlinear Pricing with Random Participation," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 277-311.
    4. d'Aspremont, Claude & Gerard-Varet, Louis-Andre, 1979. "Incentives and incomplete information," Journal of Public Economics, Elsevier, vol. 11(1), pages 25-45, February.
    5. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-631, July.
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    Cited by:

    1. Janssen, Matthias & Wobben, Magnus, 2008. "Electricity pricing and market power: Evidence from Germany," CAWM Discussion Papers 9, University of Münster, Center of Applied Economic Research Münster (CAWM).
    2. Andrew Sweeting, 2007. "Market Power In The England And Wales Wholesale Electricity Market 1995-2000," Economic Journal, Royal Economic Society, vol. 117(520), pages 654-685, April.
    3. repec:eee:eneeco:v:64:y:2017:i:c:p:272-285 is not listed on IDEAS
    4. Janssen, Matthias & Wobben, Magnus, 2008. "Electricity Pricing and Market Power - Evidence from Germany," MPRA Paper 11400, University Library of Munich, Germany.
    5. Mendes, Carla & Soares, Isabel, 2014. "Renewable energies impacting the optimal generation mix: The case of the Iberian Electricity Market," Energy, Elsevier, vol. 69(C), pages 23-33.
    6. Milstein, Irena & Tishler, Asher, 2012. "The inevitability of capacity underinvestment in competitive electricity markets," Energy Economics, Elsevier, vol. 34(1), pages 62-77.
    7. Milstein, Irena & Tishler, Asher, 2015. "Can price volatility enhance market power? The case of renewable technologies in competitive electricity markets," Resource and Energy Economics, Elsevier, vol. 41(C), pages 70-90.
    8. Roques, Fabien A., 2008. "Market design for generation adequacy: Healing causes rather than symptoms," Utilities Policy, Elsevier, vol. 16(3), pages 171-183, September.
    9. Tishler, Asher & Milstein, Irena & Woo, Chi-Keung, 2008. "Capacity commitment and price volatility in a competitive electricity market," Energy Economics, Elsevier, vol. 30(4), pages 1625-1647, July.
    10. Roques, F. & Newbery, D.M. & Nuttall, W.J., 2004. "Generation Adequacy and Investment Incentives in Britain: from the Pool to NETA," Cambridge Working Papers in Economics 0459, Faculty of Economics, University of Cambridge.
    11. Karakatsani Nektaria V & Bunn Derek W., 2010. "Fundamental and Behavioural Drivers of Electricity Price Volatility," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 14(4), pages 1-42, September.

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    JEL classification:

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

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