How many markets for wholesale electricity when supply ispartially flexible?

Résumé

The development of non-dispatchable renewable sources of energy requires more flexible reliable thermal equipment to match residual demand. We analyze the advantages of delaying production decisions to benefit from more precise information on states of the world, at the expense of higher production costs in a two-period framework where two technologies with different flexibility characteristics are available. We determine first-best production levels ex ante and ex post, that is, when demand is still random and is known with certainty respectively. We then show that, under perfect competition, first best can be implemented indifferently either by means of ex post state-contingent markets or by means of a day-ahead market followed by adjustment markets. By contrast, when the industry is imperfectly competitive, the two market designs are not equivalent.

Mots-clés

Flexibility; Electricity; Production costs; Day-ahead market; Intraday market; Competition.;

Codes JEL

C72: Noncooperative Games
D24: Production • Cost • Capital • Capital, Total Factor, and Multifactor Productivity • Capacity
L23: Organization of Production
L94: Electric Utilities