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How good are supply function equilibrium models: an empirical analysis of the ERCOT balancing market

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Abstract

We present an empirical analysis of a supply function equilibrium model in the Texas spot electricity market. We derive conditions for optimal bidding behavior in a spot market with ex ante bilaterally contracted sales. By estimating costs, we are able to derive a set of ex post-and ex ante-optimal supply functions and use a non-parametric behavioral model to compare our theoretically optimal supply functions to actual offers made. Our results show that with the exception of the largest generators, firms make offers with markups and markdowns far in excess of what a model of profit-maximizing behavior suggests.

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Authors and Affiliations

  1. Department of Industrial Engineeringand Operations Research, University of California at Berkeley, Berkeley, CA, 94720, USA

    Ramteen Sioshansi & Shmuel Oren

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  1. Ramteen Sioshansi
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  2. Shmuel Oren
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Correspondence to Ramteen Sioshansi.

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Sioshansi, R., Oren, S. How good are supply function equilibrium models: an empirical analysis of the ERCOT balancing market. J Regul Econ 31, 1–35 (2007). https://doi.org/10.1007/s11149-006-9008-6

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  • DOI: https://doi.org/10.1007/s11149-006-9008-6

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