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Priority Service: Market Structure and Competition

Hung-po Chao, Shmuel S. Oren, Stephen A. Smith, and Robert B. Wilson

Year: 1988
Volume: Volume 9
Number: Special Issue 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol9-NoSI2-6
No Abstract

Incentive Effects of Environmental Adders in Electric Power Auctions

James B. Bushnell and Shmuel S. Oren

Year: 1994
Volume: Volume15
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No3-4
View Abstract

We make a systematic examination of the options for incorporating environmental adders into auctions for non-utility generation. To date, adders have been a popular tool of some regulators for the planning process, but have not been embraced as a tool for operations. We argue that any rational implementation of adders into a competitive acquisition process will have at least an indirect effect on the operations of the resulting electric system. If adders are to be employed, regulators must therefore be comfortable enough with them to use them explicitly in both the operation and selection of generation resources.

Economic Inefficiency of Passive Transmission Rights in Congested Electricity Systems with Competitive Generation

Shmuel S. Oren

Year: 1997
Volume: Volume18
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol18-No1-3
View Abstract

The main thesis of this paper is that passive transmission rights such as Transmission Congestion Contracts (TCCs) that are compensated ex-post based on nodal prices resulting from optimal dispatch by an Independent System Operator (ISO) will be preempted by the strategic bidding of the generators. Thus, even when generation is competitive, rational expectations of congestion will induce implicit collusion enabling generators to raise their bids above marginal costs and capture the congestion rents, leaving the TCCs uncompensated. These conclusions are based on a Cournot model of competition across congested transmission links where an ISO dispatches generators optimally based on bid prices. We characterize the Cournot equilibrium in congested electricity networks with two and three nodes. We show that absent active transmission rights trading, the resulting equilibrium may be at an inefficient dispatch and congestion rents will be captured by the generators. We also demonstrate how active trading of transmission rights in parallel with 42 competitive energy market can prevent the price distortion and inefficient dispatch associated with passive transmission rights.

The Efficiency of Multi-Unit Electricity Auctions

Wedad Elmaghraby and Shmuel S. Oren

Year: 1999
Volume: Volume20
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-No4-4
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Using a complete information game-theoretic model, we analyze the performance of different electricity auction structures in attaining efficiency (i. e., least-cost dispatch). We find that an auction structure where generators are allowed to bid for load "slices" outperforms an auction structure where generators submit bids for different hours in the day.

The Impact of Imperfect Competition in Emission Permits Trading on Oligopolistic Electricity Markets

Tanachai Limpaitoon, Yihsu Chen, and Shmuel S. Oren

Year: 2014
Volume: Volume 35
Number: Number 3
DOI: 10.5547/01956574.35.3.7
View Abstract

The impact and efficacy of a cap-and-trade regulation on the electric power industry depend on interactions of demand elasticity, transmission network, market structure, and strategic behavior of generation firms. This paper develops an equilibrium model of an oligopoly electricity market in conjunction with a Cap-and-Trade emissions permits market to study such interactions. The concept of conjectural variations is proposed to account for imperfect competition in the permits market. We demonstrate the model using a WECC 225-bus system with a detailed representation of the California market. In particular, we examine the extent to which permit trading strategies affect the market outcome. We find that a firm with more efficient technologies can employ strategic withholding of permits, which allows for its increase in output share in the electricity market at the expense of other less efficient firms. Keywords: Power market modeling, Cap-and-trade program, Market power, Conjectural variation

Economic Inefficiencies of Cost-based Electricity Market Designs

Francisco D. Munoz, Sonja Wogrin, Shmuel S. Oren, and Benjamin F. Hobbs

Year: 2018
Volume: Volume 39
Number: Number 3
DOI: 10.5547/01956574.39.3.fmun
View Abstract

Some restructured power systems rely on audited cost information instead of competitive bids for the dispatch and pricing of electricity in real time, particularly in hydro systems in Latin America. Audited costs are also substituted for bids in U.S. markets when local market power is demonstrated to be present. Regulators that favor a cost-based design argue that this is more appropriate for systems with a small number of generation firms because it eliminates the possibilities for generators to behave strategically in the spot market, which is a main concern in bid-based markets. We discuss existing results on market power issues in cost- and bid-based designs and present a counterintuitive example, in which forcing spot prices to be equal to marginal costs in a concentrated market can actually yield lower social welfare than under a bid-based market design due to perverse investment incentives. Additionally, we discuss the difficulty of auditing the true opportunity costs of generators in cost-based markets and how this can lead to distorted dispatch schedules and prices, ultimately affecting the long-term economic efficiency of a system. An important example is opportunity costs that diverge from direct fuel costs due to energy or start limits, or other generator constraints. Most of these arise because of physical and financial inflexibilities that become more relevant with increasing shares of variable and unpredictable generation from renewables.

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