Department of Management

Forward contracts in electricity markets and capacity investment: A simulation study

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  • Karla C. Álvarez-Uribe, Instituto Tecnológico Metropolitano
  • ,
  • Santiago Arango-Aramburo, Universidad Nacional de Colombia
  • ,
  • Erik Reimer Larsen

This simulation study analyzes the effect of the introduction of forward markets to mitigate cyclical price behavior in electricity markets from a dynamic extended Cobweb model. We pay particular attention to the effect of lags in investment decisions and the effect of not fully replacing retired capacity in electricity markets. In line with previous research, the introduction of forward markets decreases price variability in comparison to a spot market. However, we also observe that lags in investment decisions and the failure to fully replace retired capacity create capacity investments cycles even in the presence a forward market.

Original languageEnglish
JournalUtilities Policy
Volume54
IssueOctober
Pages (from-to)1-10
Number of pages10
ISSN0957-1787
DOIs
Publication statusPublished - 2018

    Research areas

  • Cobweb model, Complexity, Cournot markets, Electricity markets, Forward markets, RATIONAL-EXPECTATIONS, PRICES, BEHAVIOR, STABILITY, Coumot markets, POWER MARKETS, COMPETITION, FUTURES MARKETS, CYCLES, DYNAMICS, ENGLAND

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