Government

Investment Incentives And Electricity Spot Market Design

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Executive Summary

In liberalized electricity markets strategic firms compete in an environment characterized by fluctuating demand and non-storability of electricity. While spot market design under those conditions by now is well understood1, a rigorous analysis of investment incentives is still missing. Existing models, as the peak-load-pricing approach, analyze welfare optimal investment and find that optimal investment is higher with more competitive spot markets. In this paper, the authors want to extend the analysis to investment decisions of strategic firms that anticipate competition on many consecutive spot markets with fluctuating (and possibly uncertain) demand.

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