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Composition of electricity generation portfolios, pivotal dynamics and market prices

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Abstract

We use a simulation model to study how the diversification of electricity generation portfolios influences wholesale prices. We find that technological diversification generally leads to lower market prices but that the relationship is mediated by the supply to demand ratio. In each demand case there is a threshold where pivotal dynamics change. Pivotal dynamics pre- and post-threshold are the cause of non-linearities in the influence of diversification on market prices. The findings are robust to our choice of behavioural parameters and match close-form solutions where those are available.

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  • Augusto Rupérez-Micola & Albert Banal-Estañol, 2007. "Composition of electricity generation portfolios, pivotal dynamics and market prices," Economics Working Papers 1083, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:1083
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    2. Yang, Liu & Dong, Ciwei & Wan, C.L. Johnny & Ng, Chi To, 2013. "Electricity time-of-use tariff with consumer behavior consideration," International Journal of Production Economics, Elsevier, vol. 146(2), pages 402-410.
    3. Heikki Peura & Derek W. Bunn, 2015. "Dynamic Pricing of Peak Production," Operations Research, INFORMS, vol. 63(6), pages 1262-1279, December.
    4. Lin-Ju Chen & Lei Zhu & Ying Fan & Sheng-Hua Cai, 2013. "Long-Term Impacts of Carbon Tax and Feed-in Tariff Policies on China's Generating Portfolio and Carbon Emissions: A Multi-Agent-Based Analysis," Energy & Environment, , vol. 24(7-8), pages 1271-1293, December.
    5. Kettunen, Janne & Bunn, Derek W., 2016. "Risk induced resource dependency in capacity investments," European Journal of Operational Research, Elsevier, vol. 250(3), pages 914-924.
    6. Anderson, Edward & Holmberg, Pär, 2018. "Price instability in multi-unit auctions," Journal of Economic Theory, Elsevier, vol. 175(C), pages 318-341.
    7. Daron Acemoglu, Ali Kakhbod, and Asuman Ozdaglar, 2017. "Competition in Electricity Markets with Renewable Energy Sources," The Energy Journal, International Association for Energy Economics, vol. 0(KAPSARC S).
    8. Mohammad Rasouli & Demosthenis Teneketzis, 2021. "Economizing the Uneconomic: Markets for Reliable, Sustainable, and Price Efficient Electricity," Sustainability, MDPI, vol. 13(8), pages 1-38, April.
    9. Bunn, Derek W. & Oliveira, Fernando S., 2016. "Dynamic capacity planning using strategic slack valuation," European Journal of Operational Research, Elsevier, vol. 253(1), pages 40-50.
    10. Banal-Estañol, Albert & Rupérez Micola, Augusto, 2011. "Behavioural simulations in spot electricity markets," European Journal of Operational Research, Elsevier, vol. 214(1), pages 147-159, October.
    11. Young, David & Poletti, Stephen & Browne, Oliver, 2014. "Can agent-based models forecast spot prices in electricity markets? Evidence from the New Zealand electricity market," Energy Economics, Elsevier, vol. 45(C), pages 419-434.
    12. Steeger, Gregory & Rebennack, Steffen, 2017. "Dynamic convexification within nested Benders decomposition using Lagrangian relaxation: An application to the strategic bidding problem," European Journal of Operational Research, Elsevier, vol. 257(2), pages 669-686.

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    Keywords

    Electricity; market power; simulations; technology diversification;
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