Retail Competition and Electricity Contracts
Green, Richard J.
Cambridge Working Papers in Economics
Faculty of Economics
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Green, R. J. (2004). Retail Competition and Electricity Contracts. https://doi.org/10.17863/CAM.5049
Long-term contracts for electricity can counter market power and reduce prices in short-term markets. If electricity retailers face competition, however, companies signing long-term contracts are exposed to the risk that a fall in short-term prices would allow rivals to buy on the spot market and undercut them. Could this lead to less contracting and higher prices? This paper combines a model of electricity retailing and a Cournot model of competition in the wholesale markets to estimate the size of this effect, and finds that it could raise wholesale prices by two or three percent.
Classification-JEL: L94, Electricity, contract markets, retail competition
This record's DOI: https://doi.org/10.17863/CAM.5049
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