| Sufficient and efficient electricity supply is critical to the steady growth of economies. In the last two decades, many electricity sectors around the world have been undergoing a reform from a command-and-control industry to competitive markets. A major obstacle to a successful reform is locational market power. To address this issue, many markets have been following a multiple-settlement approach where forward transactions, day-ahead transactions, and real-time transactions are settled sequentially at different prices. In this thesis, we focus on centrally-dispatched markets, and explore the effect of forward contracting on energy prices and consumer benefits.; In the first part, we develop two Nash-Cournot models of spot electricity markets. In these two models, the strategic variables for the independent system operator (ISO) are assumed to be the nodal imports/exports and the locational price premiums, respectively. Both models can be represented as linear complementarity problems (LCPs) with a positive semi-definite matrix.; The second part extends the two spot market models to two-settlement (forward contingencies. In both two-settlement models, we view the settlements as a two-stage Nash-Cournot game, and formulate its subgame perfect Nash equilibrium as a stochastic equilibrium problem with equilibrium constraints (SPEC), in which each firm solves a stochastic mathematical program with equilibrium constraints (MPEC). In each MPEC, the upper level is the firm's utility-maximization problem in the forward market, and the lower level, which is shared by all MPECs, is a parametric LCP characterizing the equilibrium outcomes in the spot market.; We apply the models to a stylized version of the Belgian electricity network, and observe that, with two settlements, suppliers are willing to engage in forward transactions despite the mitigating effect of such transactions on their market power; forward contracting reduces spot prices and increases social welfare; and producers commit more forward contracts when the markets become less concentrated.; Next, we introduce two alternatives for capping prices. A spot price cap is a regulatory approach to truncate price spikes in the real-time market. A forward price cap is a proxy for competitive entry: when the forward prices exceed the long-run amortized cost, new capacity will be invested through entry which will effectively cap forward prices. Compared to the system without caps, we find that a spot price cap decreases firms' incentives for forward contracting, whereas a forward price cap raises such incentives. (Abstract shortened by UMI.)... |
