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Price Spikes in Electricity Markets: A Strategic Perspective

This paper aims to analyze the issue of price spikes in electricity markets through the lens of noncooperative game theory. The case we consider is Australia’s long established National Electricity Market (NEM). Specifically, we adapt von der Fehr and Harbord’s multi-unit auction model to settings that more closely reflect the structure of the NEM, showing that price spikes can be related to a specifiable threshold in demand.

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File URL: http://www.uq.edu.au/economics/eemg_/pdf/05.pdf
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Paper provided by School of Economics, University of Queensland, Australia in its series Energy Economics and Management Group Working Papers with number 05.

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Date of creation: Dec 2010
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Handle: RePEc:qld:uqeemg:05
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Web page: http://www.uq.edu.au/eemg
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  1. Holmberg, Par, 2008. "Unique supply function equilibrium with capacity constraints," Energy Economics, Elsevier, vol. 30(1), pages 148-172, January.
  2. Ettore Bompard & Yuchao Ma & Elena Ragazzi, 2005. "Micro-economic Analysis of the Physical Constrained Markets: Game Theory Application to Competitive Electricity Markets," Papers physics/0512210, arXiv.org.
  3. Von der Fehr, N.H.M. & Harbord, D., 1992. "Spot Market Competition in the UK Electricity Industry," Memorandum 09/1992, Oslo University, Department of Economics.
  4. John Foster & Melvin J. Hinich & Phillip Wild, 2008. "Randomly Modulated Periodic Signals in Australias National Electricity Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 105-130.
  5. Crawford, Gregory S. & Crespo, Joseph & Tauchen, Helen, 2007. "Bidding asymmetries in multi-unit auctions: Implications of bid function equilibria in the British spot market for electricity," International Journal of Industrial Organization, Elsevier, vol. 25(6), pages 1233-1268, December.
  6. Emmanuel Dechenaux & Dan Kovenock, 2007. "Tacit collusion and capacity withholding in repeated uniform price auctions," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 1044-1069, December.
  7. Timothy Christensen & Stan Hurn & Kenneth Lindsay, 2009. "It Never Rains but it Pours: Modeling the Persistence of Spikes in Electricity Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 25-48.
  8. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
  9. Phillip Wild & Melvin J. Hinich & John Foster, 2008. "Are Daily and Weekly Load and Spot Price Dynamics in Australia’s National Electricity Market Governed by Episodic Nonlinearity?," Discussion Papers Series 368, School of Economics, University of Queensland, Australia.
  10. Andrew Sweeting, 2004. "Market Power in the England and Wales Wholesale Electricity," Working Papers 0413, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  11. Green, Richard & Newbery, David M G, 1991. "Competition in the British Electricity Spot Market," CEPR Discussion Papers 557, C.E.P.R. Discussion Papers.
  12. Ali Hortaçsu & Steven L. Puller, 2008. "Understanding strategic bidding in multi-unit auctions: a case study of the Texas electricity spot market," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 86-114.
  13. de Frutos, Maria-Angeles & Fabra, Natalia, 2008. "On the Impact of Forward Contract Obligations in Multi-Unit Auctions," CEPR Discussion Papers 6756, C.E.P.R. Discussion Papers.
  14. Brennan, Donna & Melanie, Jane, 1998. "Market power in the Australian power market," Energy Economics, Elsevier, vol. 20(2), pages 121-133, April.
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