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Representing the effects of oligopolistic competition on risk-neutral prices in power markets

Vazquez, Miguel and Barquín, Julián (2009): Representing the effects of oligopolistic competition on risk-neutral prices in power markets.

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Abstract

Forward transactions are becoming increasingly important in most of electricity markets. In this view, this paper develops a methodology able to capture the complexities of power markets and incorporate them into the framework of risk-neutral probabilities. This is done by the statement of a model that split up the power price dynamics into two different components: on the one hand, a component aimed at representing costs and market power, which will be based on a static, non-cooperative game; on the other,a component representing short-term deviations from the static model.

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