Download Strategic Price Risk in the Wholesale Power Markets by Derek W. Bunn, Derek Bunn PDF

By Derek W. Bunn, Derek Bunn

This accomplished identify appears to be like at new learn on simulating strategic rate chance within the united kingdom and ecu energy markets. It additionally explains why research of strategic expense probability is important in rate hazard forecasting in energy markets.

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Sample text

For example, if we look at the supply function for the England and Wales Pool on January 20, 1997 (Fig. 1) and compare it with an estimate of marginal costs for these plants (Fig. 2), we see evidence of an ability to achieve prices that is almost twice as great as one might expect from a perfectly competitive market. It might be thought that after about seven years of learning to play games in the Pool this supply function would have become basically stable, with variations reflecting simply the technical issues of availability.

11 Simulated days 100–150 of the system supply function with the scenario of 75% contracted, 7–14 optimising iterations and peaking gensets set to £50/MWh Price (£/MWh) 60 50 40 30 20 10 0 150 36,500 32,000 23,000 18,500 14,000 Capacity 9,500 (MW) 5,000 140 130 Days 120 110 100 gensets set to £50/MWh. This illustration shows the significant differences in the dynamics of the supply functions when more optimising iterations are performed. The explanation for these dynamics is that since each generating company believes that its competitors will act as they did on the previous day, there is an incentive for each company to lower its price so as to undercut that of its competitors, gaining more generation and only slightly reducing market prices.

In this game, profits are made that are higher than the equilibrium strategies of the one-shot game, where companies only consider one day of the market. Analysis of repeated games indicates that depending on how much each company discounts its future profits from forthcoming rounds of the game, equilibrium solutions can give companies profits that are in a continuum between the profits received from equilibrium strategies of the one-shot game, to profits that would be received if all companies acted as joint profit maximisers.

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