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Wind Power and Market Power in Competitive Markets

Referierte Aufsätze Web of Science

Paul Twomey, Karsten Neuhoff

In: Energy Policy 38 (2010), 7, S. 3198-3210


Average market prices for intermittent generation technologies are lower than for conventional generation. This has a technical reason but can be exaggerated in the presence of market power. When there is much wind smaller amounts of conventional generation technologies are required, and prices are lower, while at times of little wind prices are higher. This effect reflects the value of different generation technologies to the system. But under conditions of market power, conventional generators with market power can further depress the prices if they have to buy back energy at times of large wind output and can increase prices if they have to sell additional power at times of little wind output. This greatly exaggerates the effect. Forward contracting does not reduce the effect. An important consequence is that allowing market power profit margins as a support mechanism for generation capacity investment is not a technologically neutral policy.

Karsten Neuhoff

Head of Department in the Climate Policy Department

Keywords: Wind power, Oligopoly pricing, Intermittency