Electricity capacity expansion in a Cournot duopoly

Research output: Chapter in Book/Report/Conference proceedingArticle in proceedingsResearchpeer-review

This paper adopts a real options approach to analyze marginal investments in power markets with heterogeneous technologies and time-varying demand. We compare the investment behavior of two firms in a Cournot duopoly to a central planner's when two categories of power plants are available; base and peak load power plants. We find that producers exercise market power and the prices increase. Furthermore, the peak load plants become relatively more valuable and the share of installed peak load capacity exceeds the peak load share in a perfectly competitive market. In a numerical example, we show that this results in welfare losses above 10 %, and significantly larger reduction in the consumer surplus. Further, we examine the effect of analyzing power markets without time-varying demand and find that this underestimates investments in peak load capacity.

Original languageEnglish
Title of host publication2017 14th International Conference on the European Energy Market, EEM 2017
PublisherIEEE Computer Society Press
Publication date14 Jul 2017
Article number7981928
ISBN (Electronic)9781509054992
DOIs
Publication statusPublished - 14 Jul 2017
Event14th International Conference on the European Energy Market, EEM 2017 - Dresden, Germany
Duration: 6 Jun 20179 Jun 2017

Conference

Conference14th International Conference on the European Energy Market, EEM 2017
LandGermany
ByDresden
Periode06/06/201709/06/2017

    Research areas

  • Capacity expansion, Duopoly, Real options, Social welfare

ID: 186087983