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Simulation of the Colombian Firm Energy Market

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Abstract

We present a simulation analysis of the proposed Colombian firm energy market. The main purpose of the simulation is to assess the risk to suppliers of participation in the market. We also are able to consider variations in the market design, and assess the impact of alternative auction parameters. Three simulation models are developed and analyzed. The first model (Model 1) uses historical price data from October 1995 through May 2006 to assess the performance risk of hypothetical thermal and hydro generating units. The second model (Model 2) uses historical price and operating data to assess performance risk of the actual generating units in Colombia over the same period. This analysis allows us to assess company risk. The third model (Model 3) differs from the other models in that it explicitly models the firm energy auction and investments going forward. Thus, the model is able to assess how the distribution of firm energy purchases differs from the firm energy target, and how this distribution depends on the firm energy demand curve. Model 3 also studies the investment decisions of suppliers, the impact of lumpy investments, and the impact of a higher scarcity price. Taken together, the simulation results demonstrate the risk reducing benefits of the firm energy market. Provided there is competitive new entry in response to load growth, the firm energy market should work well at coordinating investment in new supply, while minimizing supplier and consumer risks.

Suggested Citation

  • Peter Cramton & Steven Stoft & Jeffrey West, 2006. "Simulation of the Colombian Firm Energy Market," Papers of Peter Cramton 06scfem, University of Maryland, Department of Economics - Peter Cramton, revised 2006.
    • Handle: RePEc:pcc:pccumd:06scfem
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    File URL: https://www.cramton.umd.edu/papers2005-2009/cramton-stoft-west-simulation-colombian-firm-energy-market.pdf
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    Citations

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    Cited by:

    1. Cramton, Peter & Stoft, Steven, 2008. "Forward reliability markets: Less risk, less market power, more efficiency," Utilities Policy, Elsevier, vol. 16(3), pages 194-201, September.
    2. Zapata, Sebastian & Castaneda, Monica & Franco, Carlos Jaime & Dyner, Isaac, 2019. "Clean and secure power supply: A system dynamics based appraisal," Energy Policy, Elsevier, vol. 131(C), pages 9-21.
    3. Peter Cramton & Axel Ockenfels, 2012. "Economics and Design of Capacity Markets for the Power Sector," Papers of Peter Cramton 12cocap, University of Maryland, Department of Economics - Peter Cramton, revised 2012.
    4. Peter Cramton & Axel Ockenfels & Steven Stoft, 2013. "Capacity Market Fundamentals," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    5. Ausubel, Lawrence M. & Cramton, Peter, 2010. "Using forward markets to improve electricity market design," Utilities Policy, Elsevier, vol. 18(4), pages 195-200, December.
    6. Peter Cramton & Steven Stoft, 2007. "Colombia Firm Energy Market," Papers of Peter Cramton 07cfem, University of Maryland, Department of Economics - Peter Cramton, revised 2007.

    More about this item

    Keywords

    Auctions;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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