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Energy Journal

Strategic Forward Contracting in the Wholesale Electricity Market

Scientific Article in English
Reference
Holmberg, Pär (2011). “Strategic Forward Contracting in the Wholesale Electricity Market”. Energy Journal 32(1), 169–202. doi.org/10.5547/ISSN0195-6574-EJ-Vol32-No1-7

Author
Pär Holmberg

This paper analyses a wholesale electricity market with supply function competition. Trade in the forward and spot markets is represented by a two-stage game, and its subgame perfect Nash equilibrium (SPNE) is characterized. It is verified that increased forward sales of a producer constitute a credible commitment to aggressive spot market bidding. The paper identifies market situations when this pro-competitive commitment is unilaterally profitable for the producer. It is also proven that a producer has incentives to sell in the forward market in order to reduce competitors' forward sales, which softens their spot market offers.

Pär Holmberg

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