Conclusion

Electricity prices at power exchanges depend on some factors, e.g. production costs, supply, demand, and competitive pressure. A crucial aspect in the power market is the restricted amount of electricity a generator is able to produce. The existence of this limited production capacities influences the competitive situation strongly. Auction rules and individual production costs are further influences often analyzed.

This work analyzes the bidding behavior of two risk-neutral generators under three auction types. Each of the generators owns one power plant with the same production capacity. Producing more electricity units than the production capacity is not feasible. A well-known example for such a duopoly market is the wholesale market for electricity in England and Wales after the deregulation in 1990. The decision for a single power market based on an auction allows the operator of the electricity grid who acts also as the auctioneer to provide a high level of safety and efficiency.