A novel approach for modeling deregulated electricity markets

Ofir D. Rubin, Bruce A. Babcock

Research output: Contribution to journalArticlepeer-review

12 Scopus citations

Abstract

The theoretical framework developed in this study allows development of a model of deregulated electricity markets that explains two familiar empirical findings; the existence of forward premiums and price-cost markups in the spot market. This is a significant contribution because electricity forward premiums have been previously explained exclusively by the assumptions of perfect competition and risk-averse behavior while spot markups are generally the outcome of a body of literature assuming oligopolistic competition. Our theoretical framework indicates that a certain premium for forward contracting is required for efficient allocation of generation capacity. However, due to the uniqueness of electricity and the design of deregulated electricity markets this premium might be substantially higher than its optimal level.

Original languageEnglish
Pages (from-to)2711-2721
Number of pages11
JournalEnergy Policy
Volume39
Issue number5
DOIs
StatePublished - 1 May 2011
Externally publishedYes

Keywords

  • Deregulated electricity markets
  • Electricity forward premium
  • Oligopoly pricing

ASJC Scopus subject areas

  • Energy (all)
  • Management, Monitoring, Policy and Law

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