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Reliability and competitive electricity markets
Author(s) -
Joskow Paul,
Tirole Jean
Publication year - 2007
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2007.tb00044.x
Subject(s) - investment (military) , rationing , electricity market , electricity , microeconomics , economics , yield (engineering) , market power , market price , reliability (semiconductor) , perfect competition , industrial organization , business , power (physics) , monopoly , health care , materials science , physics , electrical engineering , engineering , quantum mechanics , politics , political science , law , metallurgy , economic growth
We derive the optimal prices and investment program for an electric power system when there are price‐insensitive retail consumers served by load serving entities that can choose any level of rationing contingent on real‐time prices. We then examine the assumptions required for competitive electricity markets to achieve this optimal price and investment program and the implications of relaxing several of these assumptions. We analyze the interrelationships between regulator‐imposed wholesale market price caps and generating capacity obligations. The implications of potential network collapses for operating reserve requirements and whether market prices yield generation investments consistent with these reserve requirements are examined.