Abstract
This paper argues that the market rules governing the operation of a restructured electricity market in combination with its market structure can have a substantial impact on the behavior of market-clearing prices. It provides an assessment of the relationship between market rules and market structure and the behavior of prices in several markets, including England and Wales, Norway, the State of Victoria in Australia, and New Zealand. The paper closes with a discussion of the available evidence that the behavior of prices in each country is the result of the exercise of market power. Several empirical regularities are suggested by this cross-country analysis. One result is greater price volatility in systems dominated by fossil-fueled power plants relative to those dominated by hydro-electric power plants. I also find that electricity supply industries with a larger component of private participation in the generation market tend to have more volatile prices, although the evidence presented also seems to suggest that markets with less participation by government-owned firms also have lower mean electricity prices after controlling for differences in generation technologies. Electricity spot markets with mandatory participation also tend to have more volatile prices than systems with voluntary participation.
Frank A. Wolak is a Professor of Economics at Stanford University and a Research Associate of the National Bureau of Economic Research. The author would like to thank Marshall Yan for the outstanding research assistance. Severin Borenstein, Jim Bushnell and Richard Green provided very helpful comments on a previous draft. Partial financial support for this research was provided by the National Science Foundation. This paper reflects the state of electricity industry restructuring in England and Wales, Norway and Sweden, Australia and New Zealand as of January 1, 1998, unless otherwise noted. An up-to-date description of the status of electricity industry restructuring in these countries can be obtained from http://www.stanford.edu/~wolak.
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Wolak, F.A. (2000). Market Design and Price Behavior in Restructured Electricity Markets: An International Comparison. In: Faruqui, A., Eakin, K. (eds) Pricing in Competitive Electricity Markets. Topics in Regulatory Economics and Policy Series, vol 36. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-4529-3_8
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DOI: https://doi.org/10.1007/978-1-4615-4529-3_8
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