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Strategic Forward Contracting in the Wholesale Electricity Market

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  • Pär Holmberg

Abstract

This paper analyses a wholesale electricity market with supply function competition. Trade in the forward and spot markets is represented by a two-stage game, and its subgame perfect Nash equilibrium (SPNE) is characterized. It is verified that increased forward sales of a producer constitute a credible commitment to aggressive spot market bidding. The paper identifies market situations when this pro-competitive commitment is unilaterally profitable for the producer. It is also proven that a producer has incentives to sell in the forward market in order to reduce competitors' forward sales, which softens their spot market offers.

Suggested Citation

  • Pär Holmberg, 2011. "Strategic Forward Contracting in the Wholesale Electricity Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 169-202.
    • Handle: RePEc:aen:journl:2011v32-01-a07
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    References listed on IDEAS

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    JEL classification:

    • F0 - International Economics - - General

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