Working Paper Series
The Competitive Effects of Linking Electricity Markets Across Space and Time
() and Frank A. Wolak
Abstract: We show that a common regulatory mandate in electricity
markets that use location-based pricing that requires all customers to
purchase their wholesale electricity at the same quantity-weighted average
of the locational prices can increase the performance of imperfectly
competitive wholesale electricity markets. Linking locational markets
strengthens the incentive for vertically integrated firms to participate in
the retail market, which increases competition in the short-term wholesale
market. In contrast, linking locational markets through a long-term
contract that clears against the quantity-weighted average of short-term
wholesale prices does not impact average wholesale market performance.
These results imply that a policy designed to address equity considerations
can also enhance efficiency in wholesale electricity markets.
Keywords: Electricity markets; Equity; Market design; Market performance; Market power; Vertical integration; (follow links to similar papers)
JEL-Codes: C72; D43; G10; G13; L13; (follow links to similar papers)
41 pages, October 17, 2017
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