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A Unique Competitive Equilibrium on Interdependent Spot Electricity and Reserve Capacity Markets

Author

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  • Richter, Jan

    (Energiewirtschaftliches Institut an der Universitaet zu Koeln)

Abstract

This paper studies the interdependency of a spot electricity market and a market for incremental reserve capacity in a competitive setting, where a continuum of firms supplies both markets. It is proved that a simultaneous competitive equilibrium on both markets exists in the stylised model used. It turns out that all market equilibria are characterised essentially by a u-shaped reserve capacity market bidding function and that the set of suppliers declaring reserve capacity constitutes an interval. If the supplier’s marginal cost curve is convex, then a unique equilibrium exists.

Suggested Citation

  • Richter, Jan, 2011. "A Unique Competitive Equilibrium on Interdependent Spot Electricity and Reserve Capacity Markets," EWI Working Papers 2011-9, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    • Handle: RePEc:ris:ewikln:2011_009
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    References listed on IDEAS

    as
    1. Just, Sebastian & Weber, Christoph, 2008. "Pricing of reserves: Valuing system reserve capacity against spot prices in electricity markets," Energy Economics, Elsevier, vol. 30(6), pages 3198-3221, November.
    2. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-953, October.
    3. Ali Hortaçsu & Steven L. Puller, 2008. "Understanding strategic bidding in multi‐unit auctions: a case study of the Texas electricity spot market," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 86-114, March.
    4. Chao, Hung-Po & Wilson, Robert, 2002. "Multi-dimensional Procurement Auctions for Power Reserves: Robust Incentive-Compatible Scoring and Settlement Rules," Journal of Regulatory Economics, Springer, vol. 22(2), pages 161-183, September.
    5. Anna Creti & Natalia Fabra, 2003. "Capacity Markets for Electricity," Industrial Organization 0309002, University Library of Munich, Germany, revised 26 Nov 2003.
    6. Sebastian Just, 2011. "Appropriate contract durations in the German markets for on-line reserve capacity," Journal of Regulatory Economics, Springer, vol. 39(2), pages 194-220, April.
    7. Felix Müsgens, 2006. "Quantifying Market Power In The German Wholesale Electricity Market Using A Dynamic Multi‐Regional Dispatch Model," Journal of Industrial Economics, Wiley Blackwell, vol. 54(4), pages 471-498, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Competitive Equilibrium; Electricity; Reserve Capacity; Simultaneous Equilibrium;
    All these keywords.

    JEL classification:

    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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