Paper #1083

Title:

Composition of electricity generation portfolios, pivotal dynamics and market prices

Authors:

Augusto Rupérez-Micola and Albert Banal-Estañol

Date:

November 2007

Abstract:

We use a simulation model to study how the diversification of electricity generation portfolios influences wholesale prices. We find that technological diversification generally leads to lower market prices but that the relationship is mediated by the supply to demand ratio. In each demand case there is a threshold where pivotal dynamics change. Pivotal dynamics pre- and post-threshold are the cause of non-linearities in the influence of diversification on market prices. The findings are robust to our choice of behavioural parameters and match close-form solutions where those are available.

Keywords:

Electricity, market power, simulations, technology diversification

Area of Research:

Operations Management

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