Cycles in deregulated electricity markets: Empirical evidence from two decades

Santiago Arango, Erik Larsen*

*Corresponding author af dette arbejde

Publikation: Bidrag til tidsskrift/Konferencebidrag i tidsskrift /Bidrag til avisTidsskriftartikelForskningpeer review

66 Citationer (Scopus)

Abstract

In this article, we discuss the "cycle hypothesis" in electricity generation, which states that the introduction of deregulation in an electricity system might lead to sustained fluctuations of over- and under-capacity. The occurrence of cycles is one of the major threats for electricity markets as it affects the security of supply, and creates uncertainty in both the profitability of electricity companies and in consumer prices. We discuss the background for these cycles using analogies with other capital-intensive industries, along with evidence from the analysis of behavioral simulation models as well as from experimental electricity markets. Using data from the oldest deregulated markets we find support for the hypothesis in the case of the English and Chilean markets, based on an autocorrelation analysis. Evidence from the Nordpool market is more ambiguous, although we might be observing the first half of a cycle in generation capacity. Comparing a simulation of the English market performed in 1992 with the actual performance we can observe that the qualitative behavior of the model is consistent with the actual evolution. Finally, we discuss possible mechanisms for damping cycles in electricity generation, such as mothballing, capacity payments, and reliability markets.

OriginalsprogEngelsk
TidsskriftEnergy Policy
Vol/bind39
Nummer5
Sider (fra-til)2457-2466
Antal sider10
ISSN0301-4215
DOI
StatusUdgivet - 2011
Udgivet eksterntJa

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