Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Tuesday, January 14, 2014

Real-time Pricing in Power Markets: Who Gains?

Anette Boom (Department of Economics, Copenhagen Business School) and Sebastian Schwenen (DIW Berlin, German Institute for Economic Research) ask Real-time Pricing in Power Markets: Who Gains?

ABSTRACT: We examine welfare effects of real-time pricing in electricity markets. Before stochastic energy demand is known, competitive retailers contract with final consumers who exogenously do not have real-time meters. After demand is realized, two electricity generators compete in a uniform price auction to satisfy demand from retailers acting on behalf of subscribed customers and from consumers with real-time meters. Increasing the number of consumers on real-time pricing does not always increase welfare since risk-averse consumers dislike uncertain and high prices arising through market power. In the Bertrand case, welfare is the same with all or no consumers on smart meters.

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