We studied a scenario where two electricity generators compete with each other in the presence of forward market. We find that if generators are restricted to sell a fraction less than half of their total supply in the spot market, then the price of electricity falls and supply increases. Generators have to sell more in the forward market to sell electricity in the spot market; hence, they have less incentive to restrict the supply in the forward market to sell electricity at higher price in the spot market.
Atsushi, IIMI (2004), ‘Power Market Architecture in India’, JBICI Working Paper No. 15, Japan Bank of International Cooperation.
2.
Borenstein, S., J. Bushnell and F. Wolak (2002), ‘Measuring Market Inefficiencies in California’s Restructured Wholesale Electricity Market’, The American Economic Review, 92: 1376–1405.
3.
The Gazette of India, Ministry of Power (2005), ‘Guidelines for Determination of Tariff through Bidding Process for Procurement of Distribution Licensees’, No. 23/11/2004 – R&R (Vol. II), The Gazette of India, New Delhi, 19 January.
4.
Joskow, P. and E. Kahn (2002), ‘A Quantitative of Pricing Behavior in California’s Wholesale Electricity Market during Summer 2000’, The Energy Journal, 23: 1–35.
5.
Joshua, Gans, Danny Price and Woods Kim (1998), ‘Contracts and Electricity Pool Prices’, Australian Journal of Management, June, 23(1): 83–96.
6.
Newbery, David M. (1998), ‘Competition, Contracts, and Entry in the Electricity Spot Market’, The Rand Journal of Economics, 29(4), Winter.
7.
Schultz, Christian (2005), ‘Virtual Capacity and Competition’, CESIFO Working Paper No. 1487, Center for Economic Studies and Ifo Institute for Economic Research.
