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Strategic interaction between wholesale and ancillary service markets

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  • David P. Brown
  • Andrew Eckert
  • Douglas Silveira

Abstract

In electricity markets, ancillary services (AS) are vital to ensuring system reliability through the instantaneous balancing of supply and demand. An important current policy question is whether AS markets clear simultaneously or sequentially with wholesale markets. We develop a model to study the strategic implications of market timing. We demonstrate that a strategic incentive to reduce AS and, consequently, lower marginal cost in the wholesale market arises when markets clear sequentially. Using data from Alberta, we find that the strategic effect has a small impact on wholesale outcomes but a large impact on the AS market.

Suggested Citation

  • David P. Brown & Andrew Eckert & Douglas Silveira, 2023. "Strategic interaction between wholesale and ancillary service markets," Competition and Regulation in Network Industries, , vol. 24(4), pages 174-198, December.
    • Handle: RePEc:sae:crnind:v:24:y:2023:i:4:p:174-198
    DOI: 10.1177/17835917231217125
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    More about this item

    Keywords

    Electricity market ancillary services; market power; strategic commitment;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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