An Experimental Analysis of the Effects of Automated Mitigation Procedures on Investment and Prices in Wholesale Electricity Markets

Abstract

In this paper we report the findings of an experiment that examines the effects of automated mitigation procedures (AMP) on capacity investment prices of suppliers in a wholesale electricity market. Specifically, in a 2 x 2 design we examine the effects of strong and weak market power incentives on markets with and without the AMP. We find that a type of soft relative offer cap does not affect overall investment in capacity. The AMP also does not reduce long-run wholesale electricity prices relative to markets in which no mitigation mechanism is in operation. The factor with the most significant effect on long-run prices is investment in new capacity.

Keywords: electric power markets, automated mitigation procedures, investment

JEL Classification: C92, L11, L94