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Estimating deficit probabilities with price-responsive demand in contract-based electricity markets

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  • Galetovic, Alexander
  • Muñoz, Cristián M.

Abstract

Studies that estimate deficit probabilities in hydrothermal systems have generally ignored the response of demand to changing prices, in the belief that such response is largely irrelevant. We show that ignoring the response of demand to prices can lead to substantial over or under estimation of the probability of an energy deficit. To make our point we present an estimation of deficit probabilities in Chile's Central Interconnected System between 2006 and 2010. This period is characterized by tight supply, fast consumption growth and rising electricity prices. When the response of demand to rising prices is acknowledged, forecasted deficit probabilities and marginal costs are shown to be substantially lower.

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  • Galetovic, Alexander & Muñoz, Cristián M., 2009. "Estimating deficit probabilities with price-responsive demand in contract-based electricity markets," Energy Policy, Elsevier, vol. 37(2), pages 560-569, February.
    • Handle: RePEc:eee:enepol:v:37:y:2009:i:2:p:560-569
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    References listed on IDEAS

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    Cited by:

    1. Galetovic, Alexander & Muñoz, Cristián M., 2013. "Wind, coal, and the cost of environmental externalities," Energy Policy, Elsevier, vol. 62(C), pages 1385-1391.
    2. Galetovic, Alexander & Muñoz, Cristián M., 2011. "Regulated electricity retailing in Chile," Energy Policy, Elsevier, vol. 39(10), pages 6453-6465, October.

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    Price elasticity Deficit Demand;

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