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Energy prices in the presence of plant indivisibilities

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  • Fischer, Ronald
  • Serra, Pablo

Abstract

In several countries (Chile, Bolivia, Argentina and Peru, among others), power plants are dispatched according to merit order, i.e., based on the marginal operating costs of the plants. In this scheme, the plant with the highest marginal cost sets the spot price at which firms trade the energy requires to fulfill their contracts. The model assumes that plants can operate at any level up to capacity, whereas real power plants have minimum operating levels. This implies that a low cost plant might have to reduce its supply in order to accommodate the minimum operating level of a more expensive power plant. This paper derives the welfare maximizing price rules in this case and shows that the standard peak load pricing rules no longer apply.
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Suggested Citation

  • Fischer, Ronald & Serra, Pablo, 2003. "Energy prices in the presence of plant indivisibilities," Energy Economics, Elsevier, vol. 25(4), pages 303-314, July.
    • Handle: RePEc:eee:eneeco:v:25:y:2003:i:4:p:303-314
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    1. Johnson, Raymond B. & Oren, Shmuel S. & Svoboda, Alva J., 1997. "Equity and efficiency of unit commitment in competitive electricity markets," Utilities Policy, Elsevier, vol. 6(1), pages 9-19, March.
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    Cited by:

    1. Arellano, M. Soledad & Serra, Pablo, 2007. "Spatial peak-load pricing," Energy Economics, Elsevier, vol. 29(2), pages 228-239, March.
    2. José Pablo Arellano, 2004. "Principios para Tarificar la Transmisión Eléctrica," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 41(123), pages 231-253.
    3. Ke-Wei Huang & Arun Sundararajan, 2011. "Pricing Digital Goods: Discontinuous Costs and Shared Infrastructure," Information Systems Research, INFORMS, vol. 22(4), pages 721-738, December.
    4. M. Soledad Arellano & Pablo Serra, 2003. "Principios para Tarificar la Transmisión Eléctrica (Principals for the price fixing of electricity transmission)," Documentos de Trabajo 170, Centro de Economía Aplicada, Universidad de Chile.

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