Equilibrium analysis of forward markets for electricity and reserves.

摘要

Once thought of as a “natural monopoly” industry, the electric power sector has undergone changes intended to promote competition. While the deregulation of a traditionally government-regulated enterprise has created efficient mechanisms for electricity generation, it has also introduced problems associated with competitive forces. In this dissertation, we examine the issues of price volatility, equilibrium forward pricing, and price-elastic demand.; We begin by investigating the extreme price volatility in the reserves markets of a deregulated electricity industry. In the first year of operation of the California electricity markets, the prices of reserves were more volatile than those for electricity. Furthermore, there was little correlation between electricity and reserves prices although the two products use the same underlying technology. By analyzing price markups in the reserves markets, we find market power by generators to be the probable proximate cause of the high price volatility.; Motivated by such distortions in markets for reserves, we next develop a protocol for pricing forwards for electricity and reserves. We use a market-equilibrium approach to model a perfectly competitive electricity industry with generators, retailers, and an independent system operator (ISO) that procures enough reserves to maintain system reliability. Since each participant seeks to maximize its expected utility of wealth and all markets clear, we determine the optimal quantities traded and equilibrium prices of both electricity and reserves. Our analysis suggests that electricity reserves are essentially call options that can be used as derivatives to manage risk.; In order to assess the impact, of price-elastic demand, we allow end-users in our model to perceive real-time variations in the electricity spot price. This price responsiveness both decreases the electricity spot price and increases the risk exposure of retailers. Since the latter effect causes retailers to increase their forward purchases of electricity, while the former results in the opposite outcome, the overall impact of price elasticity on the electricity forward price is ambiguous. Moreover, allowing for early settlement of demand by inducing end-user price responsiveness at the forward stage results in a reduction of the electricity forward price relative to the case with only spot market settlement.