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The Impact of Wholesale Price Caps on Forward Contracting

Author

Listed:
  • Brown, David P.

    (University of Alberta, Department of Economics)

  • Sappington, David E. M.

    (University of Florida)

Abstract

It has been suggested that increasing (or eliminating) the caps on short-term wholesale prices will increase long-term forward contracting for electricity. We find that a higher price cap often enhances the incentives of electricity buyers (e.g., load-serving entities) to undertake forward contracting. However, a higher cap can diminish the incentives of electricity generators to engage in forward contracting. Consequently, higher wholesale price caps are not certain to increase industry forward contracting.

Suggested Citation

  • Brown, David P. & Sappington, David E. M., 2022. "The Impact of Wholesale Price Caps on Forward Contracting," Working Papers 2022-12, University of Alberta, Department of Economics.
    • Handle: RePEc:ris:albaec:2022_012
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    File URL: https://sites.ualberta.ca/~econwps/2022/wp2022-12.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    wholesale price caps; forward contracting; electricity markets;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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