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The Electricity Contract Market in England and Wales
Author(s) -
Green Richard
Publication year - 1999
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/1467-6451.00092
Subject(s) - spot contract , spot market , hedge , competition (biology) , electricity market , marginal cost , electricity , business , incentive , economics , forward contract , commerce , microeconomics , finance , futures contract , electrical engineering , engineering , ecology , biology
In England and Wales, wholesale electricity is sold in a spot market partly covered by long‐term contracts which hedge the spot price. Two dominant conventional generators can raise spot prices well above marginal costs, and this is profitable in the absence of contracts. If fully hedged, however, the generators lose their incentive to raise prices above marginal costs. Competition in the contract market could lead the generators to sell contracts for much of their output. Since privatisation the generators have indeed covered most of their sales in the contract market.