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Market Power and Technological Bias: The Case of Electricity Generation

Author

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  • Paul Twomey

    (University of Cambridge, Faculty of Economics)

  • Karsten Neuhoff

    (University of Cambridge, Faculty of Economics)

Abstract

It is difficult to elminated all market power in electricity markets and it is therefore frequently suggested that some market power should be tolerated: extra revenues contribute to fixed cost recovery, facilitate investment and increase security of supply. This suggestion implicitly assumes all generation technologies benefit equally from market power. We assess a mixture of conventional and intermittent generation, eg coal plants and wind power. If all output is sold in the spot market, then intermittent generation benefits less from market power than conventional generation. Forward contracts or option contracts reduce the level of market power but bias against intermittent generators persists.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Paul Twomey & Karsten Neuhoff, 2005. "Market Power and Technological Bias: The Case of Electricity Generation," Working Papers EPRG 0501, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg0501
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    References listed on IDEAS

    as
    1. Markus Burger & Bernhard Klar & Alfred Muller & Gero Schindlmayr, 2004. "A spot market model for pricing derivatives in electricity markets," Quantitative Finance, Taylor & Francis Journals, vol. 4(1), pages 109-122.
    2. Hoogwijk, Monique & de Vries, Bert & Turkenburg, Wim, 2004. "Assessment of the global and regional geographical, technical and economic potential of onshore wind energy," Energy Economics, Elsevier, vol. 26(5), pages 889-919, September.
    3. repec:bla:jindec:v:47:y:1999:i:1:p:107-24 is not listed on IDEAS
    4. Hjalmarsson, Erik, 2003. "Does the Black-Scholes formula work for electricity markets? A nonparametric approach," Working Papers in Economics 101, University of Gothenburg, Department of Economics.
    5. Richard Green, 1999. "The Electricity Contract Market in England and Wales," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 107-124, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Green, Richard & Vasilakos, Nicholas, 2010. "Market behaviour with large amounts of intermittent generation," Energy Policy, Elsevier, vol. 38(7), pages 3211-3220, July.
    2. Pérez Odeh, Rodrigo & Watts, David & Negrete-Pincetic, Matías, 2018. "Portfolio applications in electricity markets review: Private investor and manager perspective trends," Renewable and Sustainable Energy Reviews, Elsevier, vol. 81(P1), pages 192-204.

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    More about this item

    Keywords

    market power; technology choice; electricity markets; intermittent output; forward and option contracting;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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