Variance of electricity prices and market power with bilateral contracts in deregulated markets

Abstract

Many countries are in the process of reforming their electricity industries or are considering such reforms. The introduction of the electricity market is the most important part of this reform. This electricity market is considered as a deregulated electricity market compared to the regulated electricity prices. The deregulated electricity market is expected to be stable and competitive. However, price volatility and market power may exist in deregulated electricity markets.

To address these stabilization and competition issues, vesting contracts and forward contracts, which are both bilateral contracts, are introduced. This thesis describes how the bilateral contracts work on controlling price volatility and market power by analytical and oligopoly models. The oligopoly models considered are supply function equilibria (SFE) and Cournot models.