O'Mahoney, Amy and Denny, Eleanor (2011): Electricity Prices and Generator Behaviour in Gross Pool Electricity Markets.
Download (605kB) | Preview
Electricity market liberalisation has become common practice internationally. The justification for this process has been to enhance competition in a market traditionally characterised by statutory monopolies in an attempt to reduce costs to end-users. This paper endeavours to see whether a pool market achieves this goal of increasing competition and reducing electricity prices. Here the electricity market is set up as a sealed bid second price auction. Theory predicts that such markets should result with firms bidding their marginal cost, thereby resulting in an efficient outcome and lower costs to consumers. The Irish electricity system with a gross pool market experiences among the highest electricity prices in Europe. Thus, we analyse the Irish pool system econometrically in order to test if the high electricity prices seen there are due to participants bidding outside of market rules or out of line with theory. Results indicate that the Irish pool system appears to be working efficiently and that generators are bidding their true marginal costs. Thus, the pool element of the market structure does not explain the high electricity prices experienced in Ireland.
|Item Type:||MPRA Paper|
|Original Title:||Electricity Prices and Generator Behaviour in Gross Pool Electricity Markets|
|Keywords:||Electricity Markets; Auction Theory; Multiple Regression Analysis|
|Subjects:||D - Microeconomics > D4 - Market Structure and Pricing
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q4 - Energy
|Depositing User:||Eleanor Denny|
|Date Deposited:||18. Nov 2011 16:09|
|Last Modified:||12. Feb 2013 16:14|
Al-Ghandoor, A., Al-Hinti, I., Jaber, J. O., & Sawalha, S. A. (2008). Electricity consumption and associated GHG emissions of the Jordanian industrial sector: Empirical analysis and future projection. Energy Policy, 36(1), 258-267, doi:10.1016/j.enpol.2007.09.020.
Bierbrauer, M., Trück, S., & Weron, R. (2004). Modeling Electricity Prices with Regime Switching Models. In M. Bubak, G. D. v. Albada, P. M. A. Sloot, & J. J. Dongarra (Eds.), Computational Science - ICCS 2004 (Vol. 3039, pp. 859-867, Lecture Notes in Computer Science): Springer Berlin / Heidelberg.
Bunn, D. W. (2000). Forecasting loads and prices in competitive power markets. Proceedings of the IEEE, 88(2), 163-169.
Bunn, D. W. (2004). Modelling prices in competitive electricity markets (Wiley finance series). Chichester, West Sussex, England; Hoboken, NJ, USA: J. Wiley.
CER (2007). Helicopter Guide to the Single Electricity Market Trading and Settlement Code.
Conejo, A. J., Contreras, J., Espínola, R., & Plazas, M. A. Forecasting electricity prices for a day-ahead pool-based electric energy market. International Journal of Forecasting, 21(3), 435-462, doi:DOI: 10.1016/j.ijforecast.2004.12.005.
David, A. K., & Fushuan, W. Strategic bidding in competitive electricity markets: a literature survey. In Power Engineering Society Summer Meeting, 2000. IEEE, 2000 2000 (Vol. 4, pp. 2168-2173 vol. 2164)
Denny, E., & O'Malley, M. (2009). The impact of carbon prices on generation-cycling costs. Energy Policy, 37(4), 1204-1212, doi:10.1016/j.enpol.2008.10.050.
DETI (2005). Irish Electricity Market Principal Challenges – Discussion Paper. In DETI (Ed.). Dublin.
Devitt, C., Diffney, S., Gerald, J. F., Valeria, L. M., & Tuohy, A. (2011). Goldilocks and the Three Electricity Prices: Are Irish Prices “Just Right”? : ESRI.
European Commission (2003). DIRECTIVE 2003/54/EC. Official Journal of the European Union. Eurostat Statistics Database. http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database2010.
Green, R. J., & Newbery, D. M. (1992). COMPETITION IN THE BRITISH ELECTRICITY SPOT MARKET. Journal of Political Economy, 100(5), 929-953.
Grimsrud, G. P., & Lefton, S. A. (1995). Economics of cycling 101: what do you need to know about cycling costs and why? : APTECH Engineering Technical Paper TP098. Harris, C. (2006). Electricity markets : pricing, structures and economics. Chichester: Wiley. IEA (1993). Shared Goals. http://www.iea.org/about/sharedgoals.htm. Accessed 25/02/11.
Karakatsani, N. V., & Bunn, D. W. (2008). Intra-day and regime-switching dynamics in electricity price formation. Energy Economics, 30(4), 1776-1797, doi:10.1016/j.eneco.2008.02.004.
Karakatsani, N. V., & Bunn, D. W. (2010). Fundamental and Behavioural Drivers of Electricity Price Volatility. Studies in Nonlinear Dynamics and Econometrics, 14(4), doi:4.
Kirschen, D., & Strbac, G. (2005). Fundamentals of power system economics. Chichester: Wiley.
Knittel, C. R., & Roberts, M. R. (2005). An empirical examination of restructured electricity prices. Energy Economics, 27(5), 791-817, doi:DOI: 10.1016/j.eneco.2004.11.005.
Lefton, S. A., Besuner, P. M., & Grimsrud, G. P. (1997). Understand what it really costs to cycle fossil-fired units. Power, 141(2), 41-&.
Murray, B. (2009). Power markets and economics : energy costs, trading, emissions. Chichester, U.K.: Wiley.
Neuhoff, K., & Newbery, D. (2005). Evolution of electricity markets: Does sequencing matter? Utilities Policy, 13(2), 163-173, doi:DOI: 10.1016/j.jup.2004.12.008.
Nogales, F. J., Contreras, J., Conejo, A. J., & Espinola, R. (2002). Forecasting next-day electricity prices by time series models. Power Systems, IEEE Transactions on, 17(2), 342-348.
Owayedh, M. S., Al-Bassam, A. A., & Khan, Z. R. Identification of temperature and social events effects on weekly demand behavior. In Power Engineering Society Summer Meeting, 2000. IEEE, 2000 2000 (Vol. 4, pp. 2397-2402 vol. 2394)
SEAI (2009a). Energy in Ireland 1990-2008.
SEAI (2009b). Understanding Electricity & Gas Prices in Ireland.
SEM-O (2010). SEM Trading and Settlement Code.
SEM Committee (2009). Information Paper on Short to Medium Term Interconnector Issues in the SEM.
Vickrey, W. (1961). COUNTERSPECULATION, AUCTIONS, AND COMPETITIVE SEALED TENDERS. Journal of Finance, 16(1), 8-37. Weron, R. (2006). Modeling and forecasting electricity loads and prices : a statistical approach (Wiley finance series). Chichester, England; Hoboken, NJ: John Wiley & Sons