Investment Incentives and Electricity Spot Market Competition

Grimm V, Zöttl G (2013)

Publication Language: English

Publication Type: Journal article

Publication year: 2013

Journal

Journal of Economics & Management Strategy Wiley-Blackwell

Publisher: Wiley-Blackwell

Book Volume: 22

Pages Range: 832-851

Journal Issue: 4

DOI: 10.1111/jems.12029

Abstract

In this paper we analyze investment decisions of strategic firms that anticipate competition on
many consecutive spot markets with fluctuating (and possibly uncertain) demand.We study how
the degree of spot market competition affects investment incentives and welfare and provide an
application of the model to electricity market data. We show that more competitive spot market
prices strictly decrease investment incentives of strategic firms. The effect can be severe enough
to even offset the beneficial impact of more competitive spot markets on social welfare. Our
results obtain with and without free entry. The analysis demonstrates that investment incentives
necessarily have to be taken into account for a serious assessment of electricity spot market design.

Authors with CRIS profile

Veronika Grimm Lehrstuhl für Volkswirtschaftslehre, insbesondere Wirtschaftstheorie Karl Gregor Zöttl Professur für Volkswirtschaftslehre

Related research project(s)

EnCN 2 - Wasserstoffspeicherung Energie Campus 2 (EnCN 2) - Speicher, Projektteil B - Speicher mit Marktreife bis 2022 Jan. 1, 2017 - Dec. 31, 2021

How to cite

APA:

Grimm, V., & Zöttl, G. (2013). Investment Incentives and Electricity Spot Market Competition. Journal of Economics & Management Strategy, 22(4), 832-851. https://doi.org/10.1111/jems.12029

MLA:

Grimm, Veronika, and Gregor Zöttl. "Investment Incentives and Electricity Spot Market Competition." Journal of Economics & Management Strategy 22.4 (2013): 832-851.

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