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Transition to Centralized Unit Commitment An Econometric Analysis of Colombia’s Experience

Abstract:
This paper attempts to shed light on the relative merits of centralized electricity markets with multipart bids and dispatch using an MIP-based unit commitment optimization approach vs. self-committed markets with linear energy supply curves. We conduct an empirical study of data from the Colombian market, which in 2009 transitioned from a self-commitment paradigm to a centralized unit commitment approach where generators offer a linear supply function for energy along with start-up costs while the commitment and dispatch are determined by the system operator using MIP-based optimization. The results indicate that the transition to centralized dispatch has resulted in productive efficiency gains through a decrease in production costs. However, these gains have not translated into wholesale price decreases; in fact, wholesale prices increased after the change in the dispatch approach. These results suggest that productive efficiency gains have been captured by suppliers through the exercise of market power.

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Energy Specializations: Electricity – R&D and Emerging Technologies; Energy Modeling – Energy Data, Modeling, and Policy Analysis; Electricity – Generation Technologies; Electricity – Markets and Prices ; Renewables – R&D and Emerging Technologies; Energy and the Economy –Economic Growth and Energy Demand

JEL Codes: Q41: Energy: Demand and Supply; Prices, Q40: Energy: General, D44: Auctions

Keywords: Centralized Unit Commitment, Productive Efficiency, Market Power

DOI: 10.5547/01956574.37.3.aria

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Published in Volume 37, Number 3 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

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