Restructuring Electricity Markets when Demand is Uncertain

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Restructuring Electricity Markets when Demand is Uncertain

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Title: Restructuring Electricity Markets when Demand is Uncertain
Effects on Capacity Investments, Prices and Welfare
Author: Buehler, Stefan; Boom, Anette
Abstract: We examine the effects of reorganizing electricity markets on capacity investments, retail prices and welfare when demand is uncertain. We study the following market configurations: (i) integrated monopoly, (ii) integrated duopoly with wholesale trade, and (iii) separated duopoly with wholesale trade. Assuming that wholesale prices can react to changes in retail prices (but not vice versa), we find that generators install sufficient capacity to serve retail demand in each market configuration, thus avoiding blackouts. Furthermore, aggregate capacity levels and retail prices are such that the separated (integrated) duopoly with wholesale trade performs best (worst) in terms of welfare. Keywords: Electricity, Investments, Generating Capacities, Vertical Integration, Monopoly and Competition. JEL-Classification: D42, D43, D44, L11, L12, L13
URI: http://hdl.handle.net/10398/7589
Date: 2006-11-15

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