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

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:
O32 - Management of Technological Innovation and R&D
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
Q2 -
D42 - Market Structure, Pricing, and Design: Monopoly
O13 - Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products

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 Quarterly Journal of the IAEE's Energy Economics Education Foundation.