Selecting Effective Divestments in Electricity Generation Markets
20 Pages Posted: 21 Apr 2010
Date Written: February 1, 2010
We study the impact of electricity divestments in a stylised model where a dominant producer faces a competitive fringe with the same cost structure and is forced to sell some of its capacity. For a given demand level, the divestment which achieves the greatest reduction in prices can be several times more effective in reducing prices than a divestment of base load (or low-cost) plants. We extend this theoretical result to the case with variable electricity demand by considering a numerical example based on data from the Italian market.
Keywords: Divestments, market power, electricity, antitrust remedies
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