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Welfare Impacts of Electricity Storage and the Implications of Ownership Structure

Ramteen Sioshansi

Year: 2010
Volume: Volume 31
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No2-7
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Abstract:
Increases in electricity price volatility have raised interest in electricity storage and its potential arbitrage value. Large utility-scale electricity storage can decrease the value of energy arbitrage by smoothing differences in prices on- and off-peak, however this price-smoothing effect can result in significant external welfare gains by reducing consumer energy costs and generator profits. As such, the incentives of merchant storage operators, consumers, and generators may not be properly aligned to ensure socially-optimal storage use. We examine storage use incentives for these different agent types and show that under most reasonable market structures a combination of merchant and consumer ownership of storage maximizes potential welfare gains from storage use.



Price Signals in "Energy-only" Wholesale Electricity Markets: An Empirical Analysis of the Price Signal in France

Philippe Vassilopoulos

Year: 2010
Volume: Volume 31
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No3-5
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Abstract:
This paper analyzes the price signals of the French wholesale electricity market. We build a model of electricity prices that takes into account several key features of the French electricity market in order to assess the capacity of the price signal to guide investments. Wholesale prices should reflect the imbalances in the generation mix but the signal can be distorted if monopoly rents and/or �missing money� are present. We simulate over the 2003-2005 period theoretical perfectly competitive prices with the installed capacity and with the optimal mix to estimate the capacity imbalances and scarcity rents. We then compare the investment signal sent by observed electricity prices and the theoretical prices with the installed capacity. Although there are signs of market contestability for the mid-merit load, through market integration with the other continental markets, observed prices are too high for the baseload and too low for the peakload, as a result distorting the signal.



Strategic Forward Contracting in the Wholesale Electricity Market

Pär Holmberg

Year: 2011
Volume: Volume 32
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No1-7
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Abstract:
This paper analyses a wholesale electricity market with supply function competition. Trade in the forward and spot markets is represented by a two-stage game, and its subgame perfect Nash equilibrium (SPNE) is characterized. It is verified that increased forward sales of a producer constitute a credible commitment to aggressive spot market bidding. The paper identifies market situations when this pro-competitive commitment is unilaterally profitable for the producer. It is also proven that a producer has incentives to sell in the forward market in order to reduce competitors' forward sales, which softens their spot market offers.



Comparison of congestion management techniques: Nodal, zonal and discriminatory pricing

Pär Holmberg and Ewa Lazarczyk

Year: 2015
Volume: Volume 36
Number: Number 2
DOI: 10.5547/01956574.36.2.7
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Abstract:
Wholesale electricity markets use different market designs to handle congestion in the transmission network. We compare nodal, zonal and discriminatory pricing in general networks with transmission constraints and loop flows. We conclude that in large games with many producers and certain information, the three market designs result in the same efficient dispatch. However, zonal pricing with counter-trading results in additional payments to producers in export-constrained nodes, which leads to inefficient investments in the long-run.



Optimal Capacity Mechanisms for Competitive Electricity Markets

Pär Holmberg and Robert A. Ritz

Year: 2020
Volume: Volume 41
Number: Special Issue
DOI: 10.5547/01956574.41.SI1.phol
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Abstract:
Capacity mechanisms are increasingly used in electricity market design around the world yet their role remains hotly debated. This paper introduces a new benchmark model of a capacity mechanism in a competitive electricity market with many different conventional generation technologies. We consider two policy instruments, a wholesale price cap and a capacity payment, and show which combinations of these instruments induce socially-optimal investment by the market. Our analysis yields a rationale for a capacity mechanism based on the internalization of a system-cost externality�even where the price cap is set at the value of lost load. In extensions, (i) we show how increasing variable renewables penetration can enhance the need for a capacity payment under a novel condition called "imperfect system substitutability" , and (ii) we outline the socially-optimal design of a strategic reserve with a targeted capacity payment.



A Survey of Capacity Mechanisms: Lessons for the Swedish Electricity Market

Par Holmberg and Thomas Tangeras

Year: 2023
Volume: Volume 44
Number: Number 6
DOI: 10.5547/01956574.44.6.phol
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Abstract:
Many electricity markets use capacity mechanisms to support producers. Capacity payments can mitigate imperfections associated with "missing money" in the spot market and solve transitory capacity shortages caused by investment cycles, regulatory changes, or technology shifts. We discuss capacity mechanisms used in electricity markets around the world. We argue that correctly designed strategic reserves are likely to be more efficient than market-wide capacity mechanisms in jurisdictions that rely on substantial amounts of variable renewable energy and hydro power for electricity supply, such as Sweden.





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