The producers of electricity using dispatchable plants rely on partially flexible technologies to match the variability of both demand and production from renewables. We analyse upward and downward flexibility in a two-stage decision process where firms compete in quantities produced ex ante at low cost and ex post at high cost to supply a random residual demand. We first compute the first best and competitive outcomes, then we determine the subgame perfect equilibria corresponding to two market designs: one where all trade occurs in a spot market with known demand, the other where a day-ahead market with random demand is added to the ex-post market, first in a general setting, then using a quadratic specification. We show that being inflexible can be more profitable than being flexible. We also show that adding a day-ahead market to the spot market increases welfare but transfers risks from firms to consumers.
flexibility; electricity; market design; risk transfer;
- C72: Noncooperative Games
- D24: Production • Cost • Capital • Capital, Total Factor, and Multifactor Productivity • Capacity
- D47: Market Design
- L23: Organization of Production
- L94: Electric Utilities
Claude Crampes et Jérôme Renault, « Supply Flexibility and risk transfer in electricity markets », TSE Working Paper, n° 22-1350, décembre 2021, révision novembre 2022.
TSE Working Paper, n° 22-1350, décembre 2021, révision novembre 2022