50 Pages Posted: 4 Jan 2019 Last revised: 5 Jun 2019
Date Written: December 1, 2018
We offer a parsimonious model to investigate how strategic wind producers sell energy under stochastic production constraints, where the extent of heterogeneity of wind energy availability varies according to wind farm locations. The main insight of our analysis is that increasing heterogeneity in resource availability improves social welfare, as a function of its effects both on improving diversification and on reducing withholding by firms. We show that this insight is quite robust for any concave and downward-sloping inverse demand function. The model is also used to analyze the effect of heterogeneity on firm profits and opportunities for collusion. Finally, we analyze the impacts of improving public information and weather forecasting; enhanced public forecasting increases welfare, but it is not always in the best interests of strategic producers.
Keywords: Energy finance, Commodity market, Market power, Pricing wind, Diversification, Investment, Public forecasting, Collusion
JEL Classification: D6, D62
Suggested Citation: Suggested Citation