Supply flexibility in electricity markets

Abstract

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 firstbest 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.

JEL codes

Replaced by

Claude Crampes, and Jérôme Renault, “How many markets for wholesale electricity when supply ispartially flexible?”, Energy Economics, vol. 81, June 2019, pp. 465–478.

Reference

Claude Crampes, and Jérôme Renault, “Supply flexibility in electricity markets”, TSE Working Paper, n. 18-964, July 2018.