We derive the optimal prices and investment program for an electric power system when there are price-insensitive retail consumers served by load serving entities that can choose any level of rationing contingent on real-time prices. We then examine the assumptions required for competitive electricity markets to achieve this optimal price and investment program and the implications of relaxing several of these assumptions. We analyze the interrelationships between regulator-imposed wholesale market price caps and generating capacity obligations. The implications of potential network collapses for operating reserve requirements and whether market prices yield generation investments consistent with these reserve requirements are examined.
|Original language||English (US)|
|Number of pages||25|
|Journal||RAND Journal of Economics|
|State||Published - Mar 2007|
ASJC Scopus subject areas
- Economics and Econometrics