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Contracting for the second best in dysfunctional electricity markets

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  • Arina Nikandrova

    (Birkbeck, University of London)

  • Jevgenijs Steinbuks

    (The World Bank)

Abstract

Power pools constitute a set of sometimes complex institutional arrangements for efficiency-enhancing coordination among power systems. In many developing countries, where such institutional arrangements can’t be established over the short term, there still can be scope for voluntary electricity-sharing agreements among power systems. Using a particular type of efficient risk-sharing model with no commitment we demonstrate that second-best coordination improvements can be achieved with low to moderate risks of participants leaving the agreement. In the absence of an impartial market operator who can observe production fluctuations in connected power systems, establishing quasi-markets for trading excess electricity helps to achieve some cooperation in mutually beneficial electricity sharing.

Suggested Citation

  • Arina Nikandrova & Jevgenijs Steinbuks, 2017. "Contracting for the second best in dysfunctional electricity markets," Journal of Regulatory Economics, Springer, vol. 51(1), pages 41-71, February.
    • Handle: RePEc:kap:regeco:v:51:y:2017:i:1:d:10.1007_s11149-016-9313-7
    DOI: 10.1007/s11149-016-9313-7
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    More about this item

    Keywords

    Electricity trade; Risk sharing arrangements; Self-enforcing contracts;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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