In this paper we apply auction theory to the modelling of competition in a multi-unit wholesale electricity market. Bidding strategies of multi-plant producers are derived and examined assuming various degrees of market concentration. Unlike previous literature, which mainly focuses on demand uncertainty, we assume both demand and cost uncertainty as well as cost differentials among the two types of generating units considered in the model, namely baseload units and peak units. Results indicate that the System Marginal Price (competitive pricing) rule provides incentives for bid shading on the part of all those generators-units who have a non-null probability of setting the market price. We also show that the extent of the bid shading is positively affected by the differential in the endowments of the baseload generation capacity of multi-plant firms. The inefficiency of the resulting allocation is also examined and some policy implications are briefly discussed.
VISCONTI PARISIO, L., Bosco, B. (2003). Market power and the power market: Multi-unit bidding and (in)efficiency in electricity auctions. INTERNATIONAL TAX AND PUBLIC FINANCE, 10(4), 377-401 [10.1023/A:1024602609265].
Market power and the power market: Multi-unit bidding and (in)efficiency in electricity auctions
VISCONTI PARISIO, LUCIA;BOSCO, BRUNO PAOLO
2003
Abstract
In this paper we apply auction theory to the modelling of competition in a multi-unit wholesale electricity market. Bidding strategies of multi-plant producers are derived and examined assuming various degrees of market concentration. Unlike previous literature, which mainly focuses on demand uncertainty, we assume both demand and cost uncertainty as well as cost differentials among the two types of generating units considered in the model, namely baseload units and peak units. Results indicate that the System Marginal Price (competitive pricing) rule provides incentives for bid shading on the part of all those generators-units who have a non-null probability of setting the market price. We also show that the extent of the bid shading is positively affected by the differential in the endowments of the baseload generation capacity of multi-plant firms. The inefficiency of the resulting allocation is also examined and some policy implications are briefly discussed.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.