Supply Function Equilibrium over a Constrained Transmission Line II: Multiple Plants and Nodal Price Derivatives

Arbeitspapier

Market power in electricity wholesale markets arises when generators have incentives to mark up their offers above the cost of production.I model a transmission network with a single line. I derive optimality conditions for supply functions for generators who supply energy at both ends of the line, and also for generators who hold financial derivatives on the locational prices. These financial derivatives include contracts for differences as well as fiancial transmission rights. One way that generators can manipulate prices in their favor is by inducing congestion in the network. I find that dispersed ownership and financial transmission rights are both effective ways to reduce strategic congestion of the line. I also fid that certain portfolios of contracts for differences can lead to multiple supply function equilibria.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IFN Working Paper ; No. 1209

Classification and Topics

• Classification: Wirtschaft ; Existence and Stability Conditions of Equilibrium ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Market Design ; Oligopoly and Other Imperfect Markets ; Electric Utilities
• Subject: Supply function equilibrium ; Electricity markets ; Market power ; Financial transmission rights

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ruddell, Keith
• Event: Veröffentlichung
• (who): Research Institute of Industrial Economics (IFN)
• (where): Stockholm
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/183438
• Last update: 10.03.2025, 11:44 AM CET