Strategic Bidding of Electric Power Generating Companies: Evidence from the Australian National Energy Market

36 Pages Posted: 21 Feb 2018  

Mardi H. Dungey

University of Tasmania; Financial Research Network (FIRN)

Ali Ghahremanlou

University of Tasmania

Ngo Van Long

McGill University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: January 17, 2018

Abstract

We extend existing theoretical frameworks describing electricity markets where each generator provides a Market Operator (MO) with a supply schedule in advance. The MO combines these with demand forecasts to produce equilibrium prices and instructs firms on their dispatch. We incorporate the possibility that generating firms may rebid (or revise) their supply schedule prior to dispatch - an important feature of markets in many countries which has not previously been included in theoretical models. We show that a dominant firm can gain substantially by manipulating its bids, and take advantage of the opportunity to submit rebids. In the Australian National Energy Market (NEM) where settlement prices are an average of six dispatch prices, it can, for example, withhold capacity at lower prices for the first bid in a period, creating a price hike, and then add capacity at lower prices to ensure dispatch. Using data from the Australian NEM we provide the first empirical evidence consistent with the hypothesized theoretical behaviour in the observed data.

Keywords: electricity markets, Australia, rebidding

JEL Classification: Q410, D430, D230

Suggested Citation

Dungey, Mardi H. and Ghahremanlou, Ali and Long, Ngo Van, Strategic Bidding of Electric Power Generating Companies: Evidence from the Australian National Energy Market (January 17, 2018). CESifo Working Paper Series No. 6819. Available at SSRN: https://ssrn.com/abstract=3126673

Mardi H. Dungey (Contact Author)

University of Tasmania ( email )

French Street
Sandy Bay
Tasmania, 7250
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Ali Ghahremanlou

University of Tasmania ( email )

French Street
Sandy Bay
Tasmania, 7250
Australia

Ngo Van Long

McGill University - Department of Economics ( email )

855 Sherbrooke Street West
Montreal, QC H3A 2T7
Canada
514-398-4850 (Phone)
514-398-4938 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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