Scandinavian Working Papers in Economics

Working Papers,
Copenhagen Business School, Department of Economics

No 01-2013: Real-time Pricing in Power Markets: Who Gains?

Anette Boom () and Sebastian Schwenen ()
Additional contact information
Anette Boom: Department of Economics, Copenhagen Business School, Postal: Department of Economics, Copenhagen Business School, Porcelaenshaven 16 A, 1., DK-2000 Frederiksberg, Denmark
Sebastian Schwenen: DIW Berlin, German Institute for Economic Research

Abstract: We examine welfare e ffects of real-time pricing in electricity markets. Before stochastic energy demand is known, competitive retailers contract with final consumers who exogenously do not have real-time meters. After demand is realized, two electricity generators compete in a uniform price auction to satisfy demand from retailers acting on behalf of subscribed customers and from consumers with real-time meters. Increasing the number of consumers on real-time pricing does not always increase welfare since risk-averse consumers dislike uncertain and high prices arising through market power. In the Bertrand case, welfare is the same with all or no consumers on smart meters.

Keywords: Electricity; Real-time Pricing; Market Power; Efficiency.

JEL-codes: D42; D43; D44; L11; L12; L13

39 pages, October 21, 2013

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