Diss. (sammanfattning) Uppsala : Uppsala universitet, 2005. / Härtill 5 uppsatser.

In the first chapter, we propose a new method for modeling competition in electricity spot markets, namely, by approximating the supply functions of the competitors with cubic splines. We argue that this method is preferable to approximation by linear or piecewise-affine functions, which have been the main approaches to date. We apply our method to the firms competing in the Texas market. We also show that, more often than not, we will observe that the marginal revenue functions of the firms will have increasing segments which may lead to multiple profit-maximizing optima for a firm. In the second chapter, we model the effects of forward contracting on power prices in wholesale electricity markets. In contrast to most of the previous literature, we explicitly model power retailers, and introduce risk aversion. As expected, increasing the number of players have pro-competitive effects on the spot price of electricity. We also find that as the generators bid more competitively, spot and forward prices converge. Our model also captures the effects of level and variability of power demand on the players' contracting decisions. In the final chapter, we depart from equilibrium approach and utilizing agent-based modeling, analyze the effects of increased power demand price sensitivity on the level and volatility of power prices. We find that as the price sensitivity increases at the demand side, power price as well as its volatility decrease significantly. We also argue that the celebrated Herfindahl-Hirschman Index to measure market concentration is not a suitable metric for power markets.

<p>In most electricity markets, producers submit supply functions to a procurement uniform-price auction under uncertainty before demand has been realized. In the Supply Function Equilibrium (SFE), every producer commits to the supply function that maximises his expected profit given the bids of competitors. </p><p>The presence of multiple equilibria is a basic weakness of the SFE framework. Essay I shows that with (i) symmetric producers, (ii) perfectly inelastic demand, (iii) a reservation price (price cap), and (iv) capacity constraints that bind with a positive probability, a unique symmetric SFE exists. The equilibrium price reaches the price cap exactly when capacity constraints bind.</p><p>Another weakness is difficulty finding a valid asymmetric SFE with non-decreasing supply functions. Essay II shows that for firms with asymmetric capacity constraints but identical constant marginal costs there exists a unique and valid SFE. Equilibrium supply functions exhibit kinks as well as vertical and horizontal segments. The price at which the capacity constraint of a firm binds is increasing in the firm’s share of market capacity. The capacity constraint of the second largest firm binds when the market price reaches the price cap. Thereafter, the largest firm supplies its remaining capacity with a perfectly elastic segment at the price cap. Essay III presents a numerical algorithm that calculates a similar SFE for asymmetric firms with increasing marginal costs. </p><p>Essay IV derives the SFE of a pay-as-bid auction such as the balancing market for electric power in Britain. A unique SFE always exists if the demand’s hazard rate is monotonically decreasing, as for a Pareto distribution of the second kind. Assuming this probability distribution, the pay-as-bid procurement auction is compared to the SFE of a uniform-price procurement auction. Two theorems in Essay V prove that the demand-weighted average price is (weakly) lower in the pay-as-bid procurement auction. </p>

In most electricity markets, producers submit supply functions to a procurement uniform-price auction under uncertainty before demand has been realized. In the Supply Function Equilibrium (SFE), every producer commits to the supply function that maximises his expected profit given the bids of competitors. The presence of multiple equilibria is a basic weakness of the SFE framework. Essay I shows that with (i) symmetric producers, (ii) perfectly inelastic demand, (iii) a reservation price (price cap), and (iv) capacity constraints that bind with a positive probability, a unique symmetric SFE exists. The equilibrium price reaches the price cap exactly when capacity constraints bind. Another weakness is difficulty finding a valid asymmetric SFE with non-decreasing supply functions. Essay II shows that for firms with asymmetric capacity constraints but identical constant marginal costs there exists a unique and valid SFE. Equilibrium supply functions exhibit kinks as well as vertical and horizontal segments. The price at which the capacity constraint of a firm binds is increasing in the firm’s share of market capacity. The capacity constraint of the second largest firm binds when the market price reaches the price cap. Thereafter, the largest firm supplies its remaining capacity with a perfectly elastic segment at the price cap. Essay III presents a numerical algorithm that calculates a similar SFE for asymmetric firms with increasing marginal costs. Essay IV derives the SFE of a pay-as-bid auction such as the balancing market for electric power in Britain. A unique SFE always exists if the demand’s hazard rate is monotonically decreasing, as for a Pareto distribution of the second kind. Assuming this probability distribution, the pay-as-bid procurement auction is compared to the SFE of a uniform-price procurement auction. Two theorems in Essay V prove that the demand-weighted average price is (weakly) lower in the pay-as-bid procurement auction.

[pt] Este trabalho analisa um mercado de eletricidade em que os geradores declaram funções de custo quadráticas para o operador da rede e também suas disponibilidades máximas de produção. O operador, então, determina as quantidades a serem produzidas por cada gerador de modo a atender a uma demanda inelástica, ao menor custo possível. Estabelecem-se alguns resultados que permitem computar os equilíbrios de Nash deste modelo e descrevem-se algumas de suas propriedades, tais como condições de existência. / [en] This work analyzes an electricity market in which generators declare quadratic cost functions for the grid operator and also the maximum capacity available. The operator then determines the quantities that each generator must produce to meet an inelastic demand at the lowest possible cost. Some results are established that allow computing the Nash equilibria of this model and some of their properties are described, such as existence conditions.